* a TS - BANKRUPTCY - application to avoid, set aside or terminate composition - application for sequestration order - applicant seeking payment for wages - interim creditors' meeting -—- composition excluding applicant - appointment of interstate trustee not justified ~ no composition payments yet made - delay making application under s.239 - no prejudice - regard to circumstances of composition - employment monies a statutory priority - composition unreasonable. Bankruptcy Act 1966 ss.242, 222, 239 Industrial Training Act 1975 (WA) Re: Forbes (1974) 24 FLR 87 Re: Thompson; Ex parte Smith (No. 1) (1975) 38 FLR 153 Re: Doukidis; Ex parte Consolidated Constructions Pty Ltd (unreported Toohey J. 26 June 1985) Re:Jacobs; Ex parte O'Connor 53 ALR 93 Re: Boyley Ex parte The Deputy Commissioner of Taxation (1952) 16 ABC 33. ANTONIO RASCHILLA v FRANK AND ADELIA GULLUNI and the Trustee of their Estate BARRY TAYLOR NO. 42 OF 1986 X FRENCH J. [c PERTH \- 5 MARCH 1987 \ 2" RINCIPAL . REGISTRY oer IN THE FEDERAL COURT ) OF AUSTRALIA ) GENERAL DIVISION ) BANKRUPTCY DISTRICT ) OF THE STATE OF ) WESTERN AUSTRALIA ) No. 42 of 1986 BETWEE Ns: ANTONIO RASCHILLA Applicant and FRANK AND ADELIA GULLUNT and the Trustee of their estate BARRY TAYLOR Respondent MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 5 March 1987 WHERE MADE: Perth THE COURT ORDERS THAT: 1. Time is extended to enable the applicant to apply to set aside the compositions under s.239 of the Bankruptcy Act. 2. Leave is granted to amend the application to include a claim for an order setting aside the compositions under s.239 of the Bankruptcy Act. 3. The composition entered into by Frank Gulluni on 14 April 1986 be set aside. 4. The composition entered into by Adelia Gulluni on 14 April 1986 be set aside. 5. Sequestration order against the estate of Frank Gulluni. Sequestration order against the estate of Adelia Gulluni. Adjourned to 2.15 pm on 17 March 1987 for submissions as to consequential orders and costs. 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 No. 42 of 1986 X BETWEE N: ANTONIO RASCHILLA Applicant and FRANK AND ADELIA GULLUNI and the Trustee of their estate BARRY TAYLOR Respondent CORAM: FRENCH J. 5 March 1987 REASONS FOR DECISION This 1S an application to avoid, set aside or terminate a composition entered into by the creditors of the respondents on 14 April 1986. In lieu of the composition the applicant seeks sequestration orders against the respondents. The applicant was employed by the respondents as an apprentice printer from 20 February 1982 to the end of October 1983. His employment was pursuant to an apprenticeship agreement under the Industrial Training Act 1975 (WA). The agreement, an unsigned copy of which was annexed to the applicant's affidavit, named as his employer "Francesco omy re 2. Gulluni and Adelia Gulluni trading as F. & A. Gulluni, 14 Lindhurst Street, Dianella". The applicant contended that pursuant to the agreement the respondents were bound to pay him at rates prescribed in the Building Trades Construction Award. He said they had underpaid him to the extent of $8,173.73. Frank Gulluni in an affidavit filed in these proceedings and sworn on 17 September 1986, disputes' the liability. He says that he employed the applicant as an apprentice on full wages until November 1983. The applicant became sick in that month and was given a medical certificate for 3 days off work. The certificate was given on a Friday. The applicant he said, did not come to work at all the following week. Gulluni refused to pay the applicant who then complained to the Painters' Union. A union representative who subsequently called on Mr Gulluni alleged that the applicant had worked on weekends for him without being paid. On this basis Mr Gulluni was told that he owed the applicant $8,000 in addition to the outstanding sick pay. en eRe eee pen en See Gulluni eventually agreed with the Painters' Union to pay the sum of $4,000.00 over 8 months for the weekend work as he was concerned about possible black bans being imposed on him. He nevertheless denied that the applicant had ever worked for him on weekends. The agreement was made with the Painters' Union and not with the applicant who would not accept the proposed payment and who on 31 January 1984 commenced proceedings in the District Court to recover the moneys allegedly due to him. After a lengthy and unexplained delay, the action was listed for hearing on 30 April 1986. On 14 April 1986 however, a meeting of the respondents' creditors was held at the Transit Inn Hotel in Perth. It was called pursuant to separate authorities dated 17 March 1986 and signed by each of the respondents in favour of David Bruce Peart, a solicitor of 1 Phillip Street, Oyster Bay in New South Wales. The authorities were executed under s.188(1)(£) of the Bankruptcy Act 1966. The debtors swore an affidavit verifying a joint statement of affairs as at 14 April 1986. A copy of this statement was filed with the Registrar in Bankruptcy on 22 May 1986. The minutes of the meeting of creditors held on 14 April ee a7 4. record that copies of the statement of affairs were handed to all creditors. The statements showed unsecured joint debts totalling $40,457.00 and an excess of secured debts over the value of the securities amounting to $16,393.00. Joint assets not subject to securities were valued at $3,850.00. There was therefore a deficrency of $53,000.00. Fourteen unsecured creditors were listed in Part II of the statement but the applicant was not among them. He did however attend the meeting of creditors with his solicitor. A document on the Court file entitled "Attendance Register" shows that the following persons were present at the meeting and records their attendance on a sheet of paper as follows:- "MEETING OF CREDITORS OF FRANK AND ADELIA GULLUNI ATTENDANCE REGISTER 14/4/86 NAME OF CREDITOR AMOUNT SIGNATURE Barron Nissan $ 24,465.00 R & I. Credit Card Dept. 1,889.49 AUST TAXATION OFFICE 4,800.00 Tony Raschilla 11,160.13 Osborne Ceiling P/L 2,562.00" Signatures appeared against each entry. According to minutes of the meeting exhibited to the respondents' affidavits Mrs Gulluni was not present. They record that Mr Gulluni explained to the meeting that she was il] but undertook that her statement of affairs would be sworn later that day. Subsequently Mrs Gulluni appended her signature along side that of her husband to a joint statutory declaration verifying the joint statement of affairs. Only the one meeting of creditors was held and it was held at the Transit Motor Inn in Perth commencing at 9.50 a.m. on 14 April 1986. However 2 sets of minutes were produced. One of these purported to record a meeting of creditors of Frank Gulluni (mis-spelt" Gullini" in the minutes) held at the above time and place. The other recorded a meeting of the creditors of Adelia Gullini (sic) at the same time and place. The two sets of minutes give a somewhat differing account of proceedings at the meeting. The differences are evidently 6. intended to reflect the fact that one set of minutes related to Mr Gulluni and the other to Mrs Gulluni. In connection with the applicant's claim the minutes of the meeting apropos Mr Gulluni record the following: "Extensive discussion then took place concerning the debt of Mr Tony Raschilla who was originally apprenticed by Mr Gullini when Mr Gullini carried on business as a Painter. The Chairman noted that the debt was not a debt relating to Mrs Gullini Mr Raschilla produced a Statement of Claim for $11,160.13 for wages and the representative from the Painters Union, Mr Wright produced a signed Agreement between the Union and Mr Gullini whereby Mr Gullini agreed to pay Mr Raschilla $4,000.00. Mr Gullini advised that he did not owe any wages to Mr Raschilla and that he had only signed the Agreement with the Painters Union as he was concerned that he may have difficulty with black bans on jobs in which he was involved. He also said that he believed the $4,000 was to be in full settlement of all claims by Mr Raschilla. Mr Gullini again denied that he owed Mr Raschilla any money and said at the time he apprenticed Mr Raschilla he had not required an apprentice and had only done so at the request of Mr Raschillas father. The representative from the Painters Union maintained that $11,160.13 was owing notwithstanding that the Agreement between Mr Gullini and the Union' made reference to the fact that the payment was in full satisfaction of any claims made by the Union. The Chairman informed Mr Raschilla and his Solicitor, Miss Withers, that it appeared Mr Raschilla may not be entitled to vote in respect to the debt as it may be unliquidated or contingent or unable to be ascertained in accordance with Section 198(2) of the Bankruptcy Act 1966. The Chairman advised that he did not intend to refuse a Creditor the right to vote without full discussion. The question of Mr McBarrons claim in respect to the sum of $20,000 he would now be required but had yet to pay to the Rural and Industries Bank of Western Australia was also discussed in detail and the Chairman advised that should Mr Raschilla not be permitted to vote at least in respect of all amounts claimed over $4,000 then Mr McBarron would also not be permitted to vote in respect to the additional $20,000 he had yet to pay. Mr McBarron accepted the Chairmans ruling. 7. The Chairman accepted that Mr Raschilla would be entitled to vote at least in respect to $4,000 the subject of an Agreement with the Union and Mr McBarron in respect to $4,465." No record of this discussion appears in the minutes relating to Mrs Guliluni. Both sets of minutes record an offer of a single composite composition in the following terms:- "Mr Gullini (sic) informed the meeting that he and his wife were prepared to offer a composition of $12,000 under Part X of the Bankruptcy Act to their creditors to be contributed by them jointly in full satisfaction of all debts owed by them jointly or seperately (sic) to be paid as follows:- 1. $800.00 within seven days. 2. $800 per month for a period of fourteen months, the first payment to be made on or before 20 May 1986 and all future payments on the 20th of each and every month." They go on to show a separate composition resolution for each debtor. The minutes relating to Mr Frank Gulluni record that a Mr Heaven of the Australian Taxation Office moved the following motion:- "That the creditors of Frank Gullini accept a composition of $6,000 under Part X of the Bankruptcy Act to be contributed by Frank Gullini and Adelia Gullini one 2a aaa Re RUT gee » an Tene ge veces Ae 8. jyointly in full satisfaction of all debts owed by Frank Gullini to be paid as follows:- 1. $400.00 within seven days. 2. $400.00 per month for a period of fourteen months, the first payment to be made on or before 20th May, 1986 and the remaining payments of $400.00 per month to be made on the 20th day of each and every month. 3. That the order of distribution of the sum of $6,000 be (a) Payment of Solicitors costs. (b) Payment of Trustees expenses. (c) Distribution of the balance to the creditors of Frank Gullini and Adelia Gullini whether joint or several in proportion to the amount which each creditors debt bears in relation to the total of those debts." A motion in identical terms, save that it opened with a reference to the creditors of Adelia Gulluni is recorded in the other minutes. What followed was shown in the minutes relating to Mr Frank Gulluni in these terms:- "The Chairman then asked whether any person present wished to speak on the motion before a vote was taken. Mr McBarron, Mr Heaven and Mr Osbourne spoke 1n favour of the motion. Mr Wright spoke against the motion and Miss Withers confirmed that her instructions were that her client would not support any proposal other than payment of his debt in full. The motion was seconded by Mr McBarron." On the other hand, according to the minutes relating to Mrs Gulluni record:- 9. "The Chairman then asked whether any person present wished to speak on the motion before a vote was taken. Mr McBarron, Mr Heaven and Mr Osbourne spoke in favour of the motion. The motion was seconded by Mr Bogie." The minutes relating to Frank Gulluni note the passage of the motion in the following terms:- "The creditors of Frank Gulluni then voted on the Special Resolution and all creditors entitled to vote other than Mr Raschilla supported the proposal. The Chairman declared that the Special Resolution had been passed." The minutes relating to Adelia Guliluni say rather 2 oddly:- a Pega "The creditors of Frank Gullini then voted on the Special Resolution and all creditors entitled to vote supported the proposal." fee on i The reference to "the creditors of Frank Gullini" in the minute relating to Adelia Gulluni was no doubt an error and intended to be a reference to the creditors of Adelia Guiluni. Further, and in spite of the implied exclusion of the applicant from the class of "creditors entitled to vote" with respect to Adelia Gulluni, both sets of minutes record the votes ~ "Cast in identical terms:- "The details of the Creditors who voted on the Special bi Resolution were:- . 10. FOR AGAINST Barron Corporation Mr Raschilla Hydroflor R & I. Credit Card Australian Taxation Dept. Osbournes Ceilings (sic)" The drafting of the minutes up to that point was directed to establishing a record of two distinct resolutions and indeed two distinct compositions. The reality underlying the records appears to have been a joint meeting of joint creditors of the Gullunis. What was put to the meeting was in substance a composite proposal for a composition but according to the record it was accepted by two distinct resolutions, one relating to each of the debtors. In Re: Forbes (1974) 24 FLR 87, a husband and wife called a joint meeting of creditors at which a composite special resolution was passed whereby the joint and several creditors of each of them purported to accept the proposal with creditors of all classes voting indiscriminately on the resolution. Judge White of the South Australian Insolvency Court sald of this procedure at p.88:- "In my opinion this procedure 1s not open to debtors under Pt X and the alleged composition is void. They should have held separate meetings (albeit concurrently) .- to which separate special resolutions could have been submitted to the relevant classes of creditors, in order that the wishes of interested parties be ascertained, ll. including the existence or otherwise of the appropriate majorities both in number and value. Where there are joint creditors, 1t 1S a matter of necessity rather than convenience that meetings are held at the one time and the one place. As will be seen later, care must be taken at such concurrent meetings to separate out the different resolutions relating to each debtor and the classes of creditors entitled to vote in relation to each resolution." These remarks were expressly approved by Riley J. in Res: Thompson; Ex parte Smith (No.1) (1975) 38 FLR 153 at 162-3. The drafting of the minutes was no doubt intended to avoid problems of the kind that arose in Re: Forbes. As drawn however, they have about them the look of partial fictions marred by poor construction. They evidence an intention to show the applicant as a separate creditor of Frank Gulluni and not as a creditor of Adelia Gulluni. So much appears from that section which has the applicant's solicitor speaking against the proposed special resolution in relation to Mr Gulluni but being silent on that relating to Mrs Gullun.. The record of the passing of the resolution relating to Mr Gulluni, indicates that "all creditors entitled to vote other than Mr Raschilla supported the proposal". (emphasis added). rere 12. The minute relating to Mrs Gulluni says simply "all creditors entitled to vote supported the proposal". The table of creditors who voted as set out in both minutes 1S inconsistent with the preceding for 1t shows the applicant voting against both resolutions. The minutes recording Mr Gulluni's meeting show the chairman saying of the applicant's claim that the debt was not a debt relating to Mrs Gulluni. A reading of the minutes would, in spite of these internal inconsistencies, lead to the conclusion that' the applicant was held by the chairman to be, and was treated as, a separate creditor of Mr Gulluni. That fact then gives rise to a further difficulty. There is an obligation upon a debtor who has authorised the calling of a meeting of creditors to prepare a statement of affairs and to submit it to the creditors at the meeting. That obligation arises under s.195 of the Bankruptcy Act. Section 187A of the Act provides:- "187A(1) The provisions of this Part apply, subject to such modifications and adaptations (if any) as are prescribed by the rules, in relation to joint debtors, whether partners or not. 13. (2) In subsection (1), "modification" includes the addition or omission of a provision or _ the substitution of a provision for another provision." Rule 100E of the Bankruptcy Rules is made pursuant s.187A and provides in relation to s.195:- ""1O00E. The following modifications of Part X of the Act are prescribed for the purposes of section 187A of the Act: (b) section 195 of the Act 1s modified by inserting after the subsection (1) the following subsection: "1A Joint debtors shall submit both a statement of their joint affairs and a statement of the separate affairs of each debtor"." to No separate statement of affairs was submitted to the meeting of creditors as required by Rule 100E. The file discloses that affidavits were lodged with the Registrar on 26 June 1986 in which each of the debtors indicated that there were no assets or liabilities other than their joint assets or liabilities. These affidavits were received under cover of a letter from D.B. Peart & Associates dated 23 June 1986. The affidavits are at odds with the minutes which treat the applicant as a separate creditor. 14. The filing with the Registrar of an affidavit of joint assets and liabilities more than 2 months after the creditors' meeting cannot on the face of it constitute a compliance with the requirements of Rule lQOE. Further reference will be made to these matters later. It is necessary however to continue with the analysis of the minutes. Under the heading "SOLICITORS COSTS" the Chairman is recorded in each set as explaining "that it was necessary for the solicitors' costs of running the meeting to be approved by Special Resolution" and advising "that he was seeking costs of $250.00". Each set of minutes then notes the following resolution:- "That the solicitor's costs of running the meeting shall be submitted to the trustee for his approval and shall be in the sum of $250.00." Whether the effect of these records is to support a claim by the solicitor who chaired the meeting for fees of $250.00 only or $500.00 comprising a sum of $250.00 for each notional meeting, does not appear. The minutes both go on to say:- soya on os a pee Fy then 15. "The Chairman informed the meeting that 1t was the prerogative of the Creditors to nominate a Trustee however the Creditors informed the meeting that they had not approached a particular Trustee. The Chairman informed the meeting that he had dealt with Mr Barry Taylor, Registered Trustee from Melbourne in the past and had found him to be efficient and to charge reasonable fees for administering a composition. Mr Taylor had also indicated that he would be prepared to consent and the Creditors indicated that they had no objection to his appointment. The Chairman called for a motion for his appointment." The minutes prepared in relation to Mr Frank Gullun1 record the following resolution:- "That Mr Barry Taylor, Registered Trustee of 576 St. Kilda Road, Melbourne in the State of Victoria be appointed trustee of the estate of Frank Gullini." Minutes in relation to Mrs Gulluni record a resolution as follows:- spectacle of a meeting in Perth, presided over by a solicitor resident in Sydney, who recommends an "That Mr Barry Taylor, Registered Trustee of 576 St. Kilda Road, Melbourne in the State of Victoria be appointed trustee of the estate of Adelia Gulluni." There is something more than a little curious about the accountant practising and evidently resident in Melbourne, administer two compositions, each involving the collection and payment of $6,000.00, from two debtors resident in Perth. of creditors resident in Perth, 16. The appointment of such a person as trustee may be understandable in the case of a large and complex composition perhaps involving creditors resident in more than one state of Australia. There are however, no circumstances in this case which appear to justify the appointment recommended and made. It may be of course, that there 1s some perfectly good explanation but if so it is not evident. Certainly none was proffered when the matter was raised in the course of argument. Each of the minutes also includes the following resolution:- "That the remuneration of the trustee and his staff, from the commencement of his administration to its conclusion, be fixed at an amount calculated by reference to the maximum hourly rate recommended by the Insolvency Practitioners Association of Australia from time to time, such remuneration to be subject to review by the Registrar in Bankruptcy at the insistence of any creditor or trustee 1n accordance with the Act to a maximum of $750.00." The inclusion of the resolution in each of the minutes would suggest a maximum fee of $1,500.00 overall but, as with the provision for solicitor's fees, the position in that regard is not clear. When this application first came on before Forster J. on 22 November 1986 there was no appearance on behalf of the trustee. "th SVR THE ees pe SET. ie ~e ' i H a poco ee eters " 17. Indeed the file shows that on 19 August 1986 he advised the Registrar in Bankrutpcy that he would not be represented at the hearing. Counsel for the applicant then informed the court that she had received no indication from the trustee of his attitude to the application. Forster J. adjourned the application for 4 weeks and directed the solicitors for the debtors who were represented before him, to write to the trustee and warn him that if he did not make "a proper response" to the application within 14 days, then steps would be taken to remove him as trustee. Correspondence between the solicitor for the debtors and the trustee elicited a report by letter dated 8 October 1986 addressed to those solicitors 1n which the trustee said:- "(a) All creditors listed on the debtors' joint Statement of Affairs have been circularised and requested to lodge forms of Proof of Debt. To this time we have not admitted any claims. {b) Mr Raschillia was not listed as a creditor on the debtors' Statement of Affairs, however, we are aware of his claim. We have made no determination in respect of Mr Raschilla's claim and are content to wait on the Court. (c) The Deputy Commissioner of Taxation has claimed priority pursuant to section 221P of the Income Tax Assessment Act 1936. We note that section 109 of the Bankruptcy Act 1966 was not expressed to apply to the debtors' composition, nevertheless, we still believe that the Income Tax Assessment Act 1936 1s sufficient authority to accord priority to the Deputy Commissioner. 18. (d) We would normally make a distribution to creditors at the approximate mid-point of the composition. Obviously, we will have no idea of the approximate dividend, if any, until such time as these proceedings are finalised." The trustee has filed an appearance in these proceedings and an affidavit sworn 27 October 1986. He begins in his affidavit by Geposing in the following terms:- "I was appointed trustee of the estate of Adelia Gulluni and Frank Gulluni pursuant to a meeting of creditors held on 14 April 1986." This 1S not an accurate statement of the terms of his appointments, each of which was effected by what, according to the minutes, waS a separate resolution appointing him in the one case as a trustee of the estate of Frank Gulluni and in the other as a trustee of the estate of Adelia Gulluni. The two sets of minutes already referred to were exhibited to the affidavit sworn by Mr Taylor. In reporting on his administration of "the estate of Frank and Adelia Gulluni" the trustee deposed as follows:- "(a) All creditors listed on the Debtors' joint Statement of Affairs have been circularised and requested to lodge forms of Proof of Debt. To this time I have not admitted any claims, (b) ANTONIO RASCHILLA was not listed as a Creditor on the Debtors' Statement of Affairs however I am aware of his claim. I have made no determination in respect of Antonio Raschilla's claim. 19. (c) The Deputy Commissioner of Taxation has claimed priority pursuant to section 221P of the Income Tax Assessment Act 1936. (d) I would normally make a distribution to creditors at the approximate mid-point of the composition. I will have no idea of the approximate dividend if any available for payment until such time as the proceedings brought in the Federal Court of Australia, General Division, Bankruptcy Division of the State of Western Australia are resolved." It is against this background that the application presently before the Court falls for determination. As filed it seeks orders:- "I. That the Deed of Composition entered into by the creditors of Frank and Adelia Gullaini (sic) on the 14th April 1986 be terminated. 2. Sequestration orders be made against the estates of Frank and Adelia Gullini (sic). 3. The applicant's costs be taxed and paid out of the bankrupts' estates." On the face of the application what is sought is an exercise by the court of its power to terminate compositions under s.242 of the Bankruptcy Act. At the hearing however counsel for the applicant wished to widen the scope of the application to claim in addition and in the alternative, a declaration under s.222 that the composition was void or an order setting 1t aside under s.239. 20. Counsel for the debtors indicated that the widened scope of the application would not lead him to seek to file any further materials. However he opposed the grant of the extension of time that would be necessary to consider an application to set aside the composition under s.239. In his affidavit filed in these proceedings the applicant says that he opposes the continuance of the composition on the following bases:- "(a) It deprives me of priority granted by Section 109 of the Bankruptcy Act 1966. (b) I am not satisfied that the information tendered at the meeting regarding the Gulluni's" financial affairs 1s correct. I believe that they have recently returned from an extended overseas holiday and that they will shortly be leaving the country again. (c) Since the meeting I have not been forwarded a proof of debt nor have I been given any indication by the trustee of the status of my claim. Now produced and shown to me marked with the letter "C" is a true copy of a letter dated 13th May 1986 from the trustee to my solicitors. I am informed by my solicitors and verily believe that they have since been informed by the trustee that it is unlikely that my claim will be admitted for any more than $4,000.00 if at all. (d) To the best of my knowledge the payments due by the Gulluni's under the Deed of Composition have not been made. (e) I believe that the decision to accept the scheme was made by the creditors without being aware that the Australian Taxation Office will be claiming priority for the debt due to it pursuant to $221P of the Income Taxation Assessment Act." 21. The letter from the trustee to the applicant's solicitors referred to in the affidavit, was dated 13 May 1986 and indicated that at that time the trustee was obtaining full information from the chairman of the creditors' meeting so that he could consider the applicant's claim. The applicant's solicitors were asked to defer action until the information had been received and considered and were informed that the trustee hoped to be in contact with them by 27 May 1986. The present position as indicated by the trustee's affidavit 1s that no determination has been made. It 1S appropriate first to consider the proposed application to set aside the composition under s.239 of the Bankruptcy Act. It is under this provision that the widest ranging consideration may be given to the question whether the impugned composition should be permitted to continue in force. This appears from the terms of sub~ss.239(1) and 239(2) which provide:- "239(1) A creditor may, within twenty one days from the date on which the special resolution accepting a composition under this Part was passed, apply to the Court for an order setting aside the composition and may also apply for the making of a sequestration order against the estate of the debtor. (2) If the court, on such an application, considers that the terms of the composition are unreasonable -~-n aie abe ry 22. or are not calculated to benefit the creditors generally or that for any other reason the composition ought to be set aside, 1t may make an order setting it aside and, if 1t thinks fit, may forthwith make the sequestration order sought. (3) The court may, 1f it thinks fit, dispense with service on the debtor of notice of an application under this section, either unconditionally or subject to conditions. (4) The making of an application for a sequestration order against the estate of a debtor under this section shall, for the purposes of this Act, be deemed to be equivalent to the presentation of a creditor's petition against the debtor, but the provisions of sub-section 43(1), sections 44 and 47, sub-sections 52(1) and (2) and Part XIA do not apply in relation to such an application." As an application under s.239 may only be made by a creditor a preliminary issue 1s whether the applicant answers that description. By his affidavit the applicant contends that the Gullunis underpaid him to the extent of $8,173.73. His total Claim however comes to $11,160.00. There was annexed to the affidavit a letter dated 6 November 1984 from his solicitors to the Gullunis' solicitors giving particulars of the alleged underpayment. The particulars indicate, inter alia, that he had worked and been paid for some Saturdays and Sundays between February 1982 and the termination of his employment at the end of 1983. However he claims to have received less than the award rate for those three days. wis 23. Apart from the Saturdays and Sundays, he also claimed for the difference between the award rate and what he received in respect of the following periods:- (1) February 1982-July 1982 $ 1,236.52 (ii) 10 October 1982-20 February 1983 $ 968.24 (111)20 February 1983-17 September 1983 $ 93.44 (1v) 17 September 1983-6 October 1983 $ 144.99 (v) 6 October 1983-end employment $ 180.75 The affidavit annexing these particulars was filed on 21 July 1986. In his affidavit in reply filed 17 September 1986 Mr Gulluni simply denied that the applicant had ever worked for him on Saturdays and Sundays, contended that he paid the applicant full wages until November 1983 and denied that he was ever liable to pay the wages claimed. The resolution of the conflict was not made any easier by the fact that neither party sought to cross examine the other. However I consider that I am entitled to take into account the followng matters:- 24. 1. Mr Gulluni agreed to pay $4,000 to the applicant. 2. Mr Gulluni did not in his affidavit address the detail of the applicant's claim. 3. The applicant was treated as a creditor for the purpose of voting at the meeting of creditors on Mr Gulluni's proposed composition at least in relation to $4,000 of the claim. So far as Mrs Gulluni 1S concerned I also bear in mind that the apprenticeship agreement named her together with her husband, as the applicant's employer. Her affidavit goes no further than a general denial that she was ever liable to pay to the applicant the wages claimed. In the circumstances I find that the applicant is a creditor of the Gullunis. I am not however able to make a finding as to quantum except to say that it is likely to have been at least as much as Mr Gulluni was prepared to pay, namely $4,000. The second question is whether time can and should be extended to enable the application to proceed under s.239. The power to make an order extending time 1s derived from paragraph 33(1)(c) of the Act. It is conferred in broad terms and is not dependent upon proof of special circumstances although it is necessary for an applicant to satisfy the court that in all the circumstances of the case an extension of time is just - Re: Doukidis; Ex parte Consolidated Constructions Pty Ltd (unreported Toohey J. 26 June 1985). 25. The meeting of creditors was held on 14 April 1986 and so the time limited by s.239 expired on 4 May. The present application was filed on 21 July some two and a half months later. Counsel for the applicant informed the court that the delay in instituting the application arose from the applicant's reluctance to engage in litigation if the question of his claim could be otherwise resolved. The applicant also said in his affidavit that no proof of debt was sent to him after the creditors' meeting. According to his counsel his solicitors were instructed to contact the trustee and ascertain the trustee's attitude to his claim and to the suggestion of a priority to be afforded to the Australian Taxation Office. In a letter dated 13 May 1986 the trustee wrote to the applicant's solicitors in the following terms:- "We refer to your letter dated 5 May 1986. At present we are obtaining full information from the chairman of the creditors' meeting so as to consider your client's claim. Would you please defer action until we have received this information and considered it. We hope to be in contact with you by 27 May 1986." ee: comer wr eee tray ae om) 26. Evidently the applicant's solicitors have since been informed by the trustee that it 1s unlikely that his claim will be admitted for more than $4,000 if at all. Counsel for the applicant informed the court that no further correspondence had been received from the trustee since that letter of 13 May. The trustee, 1t should be noted, had not as at 27 October 1986 made any determination of the applicant's claim. So much appears from his affidavit sworn on that day. Counsel for the applicant put as the basis for the extension of time that the applicant had been reluctant to institute proceedings in this court in relation to his claim "if there was any possible way 1t could be resolved". It was not, she said, a matter where the applicant would readily engage in expensive and protracted litigation if there was any way the matter could be resolved without resorting to that course. Counsel for the trustee, Miss Leclezio, did not oppose the applications to extend time and to amend so that the claim might be brought under ss.239 and 222. 27. The delay between the date of the resolution and the filing of the application under s.242 was not insignificant. Further, despite what counsel for the applicant said about the desirability of exploring non-litigious options before commencing these proceedings, she did not spell out what non-litigious alternative was open that would not have involved an acceptance of the applicant's claim in full and indeed of the partial statutory priority attaching to it under s.109 of the Act. An acceptance of the latter would have been outside the terms of the composition. It is apparent that even at July 1986 the applicant's advisors had simply not addressed the possibility of making an application under s.239. The approach they have taken seems to suggest that it was not considered as an option until the very last moment. This is consistent with the somewhat less than adequate material filed in support of the application. On the other hand no party appears to have been prejudiced by the delay. Further, the court 1S not, in an application of this kind, limited to questions of prejudice and the adequacy of the son - 28. explanation for the delay. It is entitled to have regard to the circumstances surrounding the composition which the creditor seeks to have set aside - Re: Doukidis; Ex parte Consolidated Construction Pty Ltd (supra) at 15. It 1S appropriate therefore to consider the merits of the substantive application. The essential questions that arise in assessing the merits are as follows:- 1. Whether the terms of the composition are unreasonable or not calculated to benefit the creditors generally. 2. Whether for any other reason the composition ought to be set aside. Section 109 of the Act sets out priorities attaching to certain classes of debt which are to be recognised by a trustee in applying proceeds of the property of a bankrupt. One of these priorities recognised in paragraph 109(1)(e) 1s expressed in the following way:- "109(1) Subject to this Act and to sections 221P, 221YHJ and 221YU of the Income Tax Assessment Act 1936, the trustee shall, before applying' the proceeds of the property of the bankrupt in making any other payments apply those proceeds in the followng order:- - igs 29. (e) f1fth, in payment of amounts (including amounts payable by way of allowance or reimbursement under a contract of employment or under an award or agreement regulating conditions of employment, but not including amounts in respect of long service leave, extended leave, annual leave, recreation leave or sick leave), not exceeding in the case of any one employee $1,500 or such greater amount as 1S prescribed for the purposes of this paragraph, due to or in respect of any employee of the bankrupt, whether remunerated by salary, wages, commission or otherwise, in respect of services rendered to or for the bankrupt before the date of the bankruptcy;" By r.40A of the Bankruptcy Rules the amount of $2,000 1s prescribed. The priority so created 1s excluded in the case of a composition. - Re: Jacobs; Ex parte O'Connor 53 ALR 93. The effect of the composition, even assuming acceptance of the applicant's full claim, is thus to defeat an obvious statutory priority. The use of a composition to defeat a statutory priority has been held to be unreasonable and a basis for rejecting a composition under s.161 of the Bankruptcy Act 1924 - Re: Boyley; Ex parte The Deputy Commissioner of Taxation (1952) 16 ABC 33. The court should closely scrutinise any composition which defeats a priority of this character particularly where the creditor concerned has voted against a proposal. te n rong vat fay te Ee ured eS 30. It will in many cases be an oppressive use of the power of the majority creditors to pass a composition resolution which defeats a priority in respect of wages. That is not to say that there may not be cases where such a composition would be reasonable. The Act by virtue of s.243 contemplates that possibility. There 1s however nothing in this case to suggest that the debtors or the other creditors gave any real consideration to the position of the applicant in relation to his priority. There are a number of other factors to be taken into account in determining whether the composition should be set aside. They are:- 1. The small sum of money offered against the overall amount of the debtors' deficit. 2. The remoteness of the trustee from both debtors and creditors. 3. The apparent existence of a statutory priority under s.221P of the Income Tax Assessment Act 1936 in favour of the Deputy Commissioner in relation to unpaid group tax, the exclusion of which was not referred to either in the statement of affairs or the minutes of the meeting. 4. The failure of the statement of affairs to disclose the applicant's claim even as a contingent debt. 5. The fact that no payments have as yet been made to any creditors under the compositions. f3l. ) Le 6. The fact that no payments have apparently been made by the debtors under the terms of the compositions. There are also, as was earlier noted, some disturbing features in the way that the record of proceedings of the meeting of creditors has been drafted. In my opinion the circumstances of the compositions are such that they should not be permitted to proceed. I am, in the circumstances of this case, prepared to extend the necessary time to enable the application to be considered to seek an order setting aside the composition under sf13). Having so extended the necessary time and having permitted the relevant amendment to the application, I will make an order setting aside the composition. In the event it is unnecessary to consider' the application under ss.222 and 242 of the Act. As to the application for sequestration orders against the Gullunis, I have regard to their hopelessly insolvent position as at the date of the special resolutions and consider that in the circumstances sequestration orders would be appropriate. However I will hear further from counsel on that question and on such other consequential orders as may be necessary. 32, I certify that the preceding thirty one (31) pages are a true copy of the Reasons for Judgment of his Honour Mr Justice French. . Associate: / thei, Were) v0" . Bate Mat 1997, Counsel for the Applicant : Mrs J. Withers instructed by Messrs. Jackson McDonald. Counsel for the Respondents : Mr P. Richards instructed by Messrs. Corser & Corser Counsel for the Trustee: Miss M.A. Leclezio instructed by Messrs. Hammond Fitzgerald & King Date of Hearing : 12 December 1986 Date of Judgment: 5 March 1987 IN THE FEDERAL COURT ) OF AUSTRALIA ) GENERAL DIVISION ) BANKRUPTCY DISTRICT ) OF THE STATE OF ) ) WESTERN AUSTRALIA No. 42 of 1986 BETWEEN: ANTONIO RASCHILLA Applicant and FRANK and ADELIA GULLUNI and the Trustee of their estate BARRY TAYLOR Respondent CORRIGENDA . Amendments to the Reasons for Judgment of his Honour Mr Justice French delivered 5 March 1987: Substitute "compositions" for "composition" at Page 1 lines 2 and 4 Page 20 lines 4 and 7 Page 21 line 11 Page 27 line 10 Page 29 line 22 Substitute "each composition" for "the composition" at Associate to Mr Justice French page 19 second last line. Date; // Marth , IVE 7.