Stems ng Judgement No. Mag, BANKRUPTCY - partners - bankrupts' application for approval of joint composition ~ application for annulment of sequestrations - husband and wife partnership ~ no provision for joint composition in ss.73-75 Bankruptcy Act - joint creditors and separate creditors voting on joint composition resolution - application dismissed - concurrent creditors meetings may approve separate resolutions, Bankruptcy Act 1966 s.56, s.73, s.74, S.187A Re: Forbes (1974) 24 FLR 87 McDonald Henry & Meeks Australian Bankruptc Law & Practice 5th Ed. Irlicht, T. Assignments, Arrangements and Compositions by Debtors 2nd Ed. ROY ALBERT EDWARDS and MARIA ANN EDWARDS EX PARTE: ROY ALBERT EDWARDS and MARIA ANN EDWARDS NO. 110 OF 1986 FRENCH J. 18 March 1987 a, Perth i" Ceo 7 \ . \ i 69 4A 1987 (i FEDERAL COLP, oF aA AUSTRALIA, PHrnwu. PAL REGISTRY IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA oo a red NO. 110 of 1986 BETWEEN: ROY ALBERT EDWARDS and MARIA ANN EDWARDS Bankrupts EX PARTE: ROY ALBERT EDWARDS and MARIA ANN EDWARDS Applicants MINUTC OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE ORDER MADE: 18 MARCH 1987 WHERE MADE: Perth THE COURT ORDERS THAT: l. That the application 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 NO. 110 OF 1986 BETWEEN: ROY ALBERT EDWARDS and MARIA ANN EDWARDS Bankrupts and EX PARTE; ROY ALBERT EDWARDS AND MARIA ANN EDWARDS Applicants CORAM: FRENCH J. 18 March 1987 REASONS FOR JUDGMENT Mr & Mrs Edwards became bankrupt on 27 February 1986 on their presentation of a joint debtors' petition against their partnership pursuant to s.56 of the Bankruptcy Act. They now apply to the Court for approval of a composition accepted by a special resolution at a meeting of their creditors held on 9 January 1987. The report of the Official Trustee indicates that Mr Edwards is a real estate representative, while Mrs Edwards is in receipt of sickness benefits. At the time of their bankruptcy they were carrying on business in partnership at Mt. Hawthorn as fish and chip shop Operators under the name "Reefa's Fish and Chippery". 2. Their joint estate comprised cash at the bank and household furniture and effects amounting to $394.00 in value. Mr Edwards' only separate asset was a book debt estimated to realise $1,025.00. Two unsecured creditors totalling $9,155.00 were disclosed on the joint statement of affairs. They were:- ANZ Bank $ 5,336.00 Keith Leslie Reeves $ 3,819.00 Mr Edwards' separate statement of affairs showed a separate unsecured creditor "ANZ Bankcard" for $1,000. It also showed "Citizen Finance" as the financier of the hire purchase of a Mercedes Benz motor vehicle with an estimated after sale deficiency of $3,638.00. The Official Trustee reports that since his bankruptcy Mr Edwards has advised of three additional unsecured creditors totalling $579.00 and one additional partly secured creditor for an unknown amount. These creditors are evidently separate creditors of Mr Edwards. There have been 3 claims for unsecured creditors admitted for a total of $12,584.00. These were:- 3. One unsecured creditor for bankcard S 927.00 Two unsecured creditors for personal loans $11,657.00 As already noted the bankcard debt appears to relate only to the estate of Mr Edwards. Realisations in the estate totalled $400.00, being from recovery of a book debt. No dividend has yet been paid to any creditor. The Edwards' purchased their fish and chip shop in June 1985 for $8,500.00. Finance was provided by a $6,000.00 loan from the ANZ Bank, $4,500.00 from the vendor and $4,000.00 from the applicants' savings. They experienced difficulties with the business from the beginning and ceased operating it in September 1985. They attributed their problems to misrepresentations as to turnover, equipment failures and domestic problems. The business was sold for $11,000.00 but the major debts to the ANZ Bank and the vendor, Reeves, remain unsatisfied. The Edwards filed their petition in bankruptcy on 27 February 1986. 4. On 9 January 1987 they offered a composition to their creditors and at a meeting of the creditors two, representing $11,657.00, voted in favour of the proposal. There were no dissentients. The terms of the composition as put to the creditors were as follows:- "We ROY ALBERT EDWARDS AND MARIA ANN EDWARDS of 17/80 Fifth Road, Armadale the abovenamed bankrupts, hereby submit the following proposal for a Composition in full satisfaction of our provable debts: l. That payment of all the proper costs, charges and expenses of = and incidental to the proceedings and all fees payable to the Official Trustee in Bankruptcy in the joint estate shall constitute a first charge on the moneys referred to in paragraph 3 hereof. 2. That payment of all priority debts directed to be so paid under the Act in the distribution of the property of a bankrupt shall constitute a second charge on the moneys referred to in paragraph 3 hereof. 3. That the Composition shall be paid on all proved debts from the following funds: (a) From all moneys in our estate held by the Offcial (sic) Trustee in the Common Investment Fund. (b) From the sum of $5000 to be provided as set out in paragraph 4 hereof. 4. That the payment of the Composition be secured in the following manner: private person (work acquaintance) The aforementioned funds totalling $5000 which were made available by a work colleague have been received by me and are currently held in my Common Investment Fund." 5. The Official Trustee expressed the opinion that the terms of the proposal are calculated to benefit the general body of creditors. I have no doubt that this is so. The sum offered is evidently sufficient to realise a dividend of 29.4 cents to proved creditors. The Official Trustee reported that he was not aware of anything in the conduct of the bankrupts whether prior to or since the date of bankruptcy which has been other than satisfactory. He said that the cause of the bankruptcy was lack of sufficient working capital. Since the bankruptcy Mr Edwards has been employed as a real estate agent from time to time. The couple have had a child and the child is fully dependent upon them for support. Notice of the application to approve the composition has been sent to all non-assenting creditors. A notice of the meeting of creditors was sent to the following persons as appears from the affidavit of one Paul Holgate:- 6. "1. Keith Leslie Reeves 2. The Manager, Kelmscott Transport and Agency 3. Recoveries Section Telecom Australia 4. Recoveries Section State Energy Commission 5. The Manager, Citizen Finance Services 6. The Manager, ANZ Banking Group Limited, 358 Albany Highway, Victoria Park. 7. 'The Manager, ANZ Banking Group Limited, 118 Bennett Street, East Perth. 8. The Manager, Voice Call, 1316 Hay Street, West Perth WA 6005" The notice of the application to this Court was sent to non-assenting creditors listed in an annexure to Mr Holgate's affidavit as follows:- "1. Keith Leslie Reeves 2. The Manager, Kelmscott Transport and Agency 3. Recovery Section Telecom Australia 4. Recovery Section State Energy Commission 5. The Manager, Voice Call" From this it may be inferred that the creditors who voted for the composition were:- "1. The ANZ Banking Group Limited (1n respect of both the personal loan (a joint debt) and the bankcard card debt (a separate debt). 2. Citizen Finance Services 1n respect of the separate debt relating to the deficiency under the hire purchase agreement for a Mercedes Benz." The papers do not disclose which of the non-assenting creditors, 1f any, were present at the meeting. The proposal 1s submitted to the court as a proposal for a joint composition. - = — ce en Tee nt = core = ee es - — 7. Section 73 of the Act provides for a bankrupt to make a proposal to his creditors for a composition in satisfaction of his debts. The section provides as follows:- "73(1) Where a bankrupt desires to make a proposal to his creditors for - (a) a composition in satisfaction of his debts; or (b) a scheme of arrangement of his affairs, he may lodge with the trustee a proposal in writing signed by him setting out the terms of the proposed composition or scheme of arrangement and particulars of any sureties forming part of the proposal. (2) The trustee shall call a meeting of creditors and shall send to each creditor before the meeting a copy of the proposal accompanied by a report on it. (3) The bankrupt may, at the meeting, amend the terms of his proposal. (4) The creditors may, by special resolution, accept the proposal. (5) A creditor who has proved his debt may assent to or dissent from the proposal by written notice to that effect delivered to the trustee before the meeting or sent by post to the trustee and received by him before the meeting, and in that case the creditor shall, for the purposes of this Division, be deemed to have been present at the meeting and to have voted according to his assent or dissent." The court 1S empowered under s.74 to approve the composition once accepted by the creditors and also to make an order annulling the bankruptcy. ad pratt Ne ta ou he ¥ RF, ' oo 8. When approved by the Court the composition is, by virtue of sub-s.75{1) "binding on all the creditors of the bankrupt so far as it relates to provable debts due to them from the bankrupt". Sections 73 and 74 do not expressly authorise the acceptance by creditors or the approval by the Court of a joint composition. Nor am I able to discover anything in the language of ss.73 to 75 which would impliedly authorise acceptance or approval of a joint composition. In a case where the bankrupts have some joint creditors and some separate creditors it would be inappropriate to submit the separate creditors to a binding composition on which they may have been out voted by joint creditors with quite different interests. Similarly 1t would be inappropriate to admit to a vote on a joint composition, separate creditors whose interests might conflict with those of the joint creditors. Re: Forbes (1974) 24 FLR 87 was a decision of Judge White in the Court of Insolvency of South Australia in which his Honour declared void a composition purportedly entered into under Part X of the Act, by a husband and wife who were not in 9. partnership but who had substantial joint creditors. Each also had separate debts. A joint meeting of creditors was called at which a composite special resolution was passed. Creditors of all classes voted on the composite special resolution. into At 88 his Honour said:- "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, including the existence or otherwise of the appropriate Majorities both in number and value. Where there are joint creditors, it is 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 i1n relation to each resolution." Since that decision was given s.187A has been introduced Part X of the Act in 1980 and reads as follows:- 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. (2) In sub-section (1), "modification" includes the addition or omission of a provision or _ the substitution of a provision for another provision." 10. In Assignments, Arrangements and Compositions by_ Debtors, 2nd Edition by T. Irlicht, the effect of s.187A is discussed in its application to the provisions of Part X. Noting that there is no difficulty where neither debtor has separate debts, the author goes on to say at para. 402:- "Difficulties arise, however, if either or both debtors have separate debts. In order to pass the necessary resolution, one must make a decision as to which creditors are to vote at the meeting in relation to the resolution requiring the debts to execute the joint deed of assignment. If it 1s considered that all creditors, that 18, joint creditors and separate creditors of either debtor, are to vote, then creditors of one debtor are voting on a resoiution which may affect the other debtor." In an earlier edition of his work which had preceded the 1980 amendment that introduced s.187A, Mr Iriicht had expressed doubt as to whether or not joint Part X proceedings could be had in relation to joint debtors who were partners. McDonald Henry & Meeks Australian Bankruptcy Law & Practice 5th Edition at para.969/3 observes:- "Such doubts are now laid to rest and joint deeds and compositions may now be entered into by joint debtors whether partners or _ not. cf. in relation to bankruptcies ss.46, 56 and 57." ll. It 1S not necessary for present purposes to decide whether or not the amendment has had the effect contended for in relation to deeds and compositions under Part X. It does not appear to have any application to a deed or composition entered into by a bankrupt under s.73. That being so, there is no authority in the Court to approve the composition. That is the case I think, whether or not there are separate creditors. In this case of course there are separate creditors of the male bankrupt. The conclusion is one that I come to with some regret as prima facie the proposal seems to be in the interests of the creditors. The proposal, if it 1s to proceed, will have to be recast in the form of separate proposals for each of the bankrupts. Each will require a separate meeting of creditors, although the meetings can be held concurrently provided that the procedure necessary to maintain the distinction between the two proposals is followed. On this basis I have no alternative but to dismiss the application. IURETRE TS NGA 12. I hereby certify that the preceding eleven (11) pages are a true copy herein of the Reasons for Judgment of his Honour Mr Justice French. Associate: Fo te dA bh Aurres. Date: /f Abin £71 /G 4 7 Counsel: . R. Thompson for the Official Trustee in Bankruptcy . for the applicants : C.J. Martin instructed by Gladstone & Martin Date of Hearing: 9 March 1987 Date Judgment Delivered: 18 March 1987