a ee IN THE FEDERAL COURT OF AUSTRALIA EXERCISING FEDERAL JURISDICTION IN BANKRUPTCY NOT FOR DISTRIBUTION -4754 3) No. 186 of 1987 (Part X) THE C BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA Re: RONALD MACRAE | MACDONALD A Debtor Ex parte: MICHAEL FRANCIS FAULKNER Applicant and RONALD MACRAE MACDONALD, IAN HUGH SHANNON and ALEX NEVILLE BIRD Respondents NORTHROP J. 15 JULY 1987 uBOURNE MINUTES OF ORDER OURT ORDERS THAT: - l. The composition of the debtor approved by special resclution of the creditors of the debtor passed on 2 June 1387 be set aside. A sequestration order be made against the estate of the debtor. The applicant's costs of and incidental to the application be taxed and paid according to the Act as if the applicant was the petitioning creditor. (This order is to be settled and filed in accordance with rule 124 of the Bankruptcy Rules.) IN THE FEDERAL COURT OF AUSTRALIA EXERCISING FEDERAL JURISDICTION No. 186 of 1987 (Fart xX) IN BANKRUPTCY BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA Re: RONALD MACRAE MACDONALD A Debtor Ex parte: MICHAEL FRANCIS FAULKNER Applicant and RONALD MACRAE MACDONALD, IAN HUGH SHANNON and ALEX NEVILLE BIRD Respondents COURT NORTHROP J. DATE 15 JULY 1987 PLACE MELBOURNE EX TEMPORE REASONS FOR JUDGMENT There 1s before the Court an application brought by Machael Francis Faulkner for an order pursuant to sub-section 239(2) of the Bankruptcy Act 1966 that the composition of the debtor, approved by special resolution of the creditors of the debtor, passed on 2 June 1987, be set aside. There 15 also an alternative claim based upon sub-section 222(2) of the Bankruptcy Act. I propose to look first at the question of the claim or application under sub-section 239(2). The facts of this case are rather unusual. Initially an authority to a solicitor to call a meeting under s.188 of the Bankruptcy Act was signed by the debtor on 7 April 1987. A meeting pursuant to that authority was held at which a composition was proposed in which a sum of $10,000 was to be paid to the trustee by way of composition, in payment of the trustee's fees and charges and an full satisfaction of the proving creditors. At that time, a statement of affairs provided by the debtor showed unsecured debts amounting to something over $900,000. For reasons which I need not explain, that composition did not proceed. The resolution was not adopted. Subsequentiy, a second authority under s.188 was signed by the debtor on 14 May 1387 appointing Mr. Ian Hugh Shannon, a solicitor, for the purposes of calling a meeting of creditors. That meeting was held om 2 June 1987, at which a composition was approved under which the debtor was to pay a sum of $2,000 for payment of the costs of the trustee, and in satisfaction of the debts owed by the debtor. The statement of affairs filed on that occasion disclosed unsecured creditors amounting in total to $447,918 and in addition a contingent liability to Potter Partners in relation to the purchase and sale of shares ina company, Tasmanian Atlantic Salmon Ltd., in the sum of $62,000. In both cases, the assets of the debtor are said to be nil. The marked difference between the statements of affairs presanted at the first meeting and at the second meeting 15 said to have arisen because of the fact that a number of the debts acknowledged at the first meeting are now said to be debts owed by a company with which the debtor was associated, and are not personal to him. Nevertheless, there us this problem of an amount of $2,000 being provided with debts acknowledged to be at least $447,900 and a fair inference to be drawn 1s that after the costs of the trustee have been taken out there will be nothing left for the creditors generally. The present applicant 1s owed an amount of $10 Ww a rie) de , uncluding costs under a judgment of the Supreme Court a Mt Victoria. Section 239 provides a method whereby the Court may set aside a composition, and the relevant basis upon which that may be done 1s sub-section 239(2) which provides:- "239(2) If the Court, on such an application, considers that the terms of the composition are unreasonable or are not calculated to benefit the creditors generally or that for any other reason the composition ought to be set aside, it may make an order setting it aside and, if 1t thinks fit, may forthwith make the sequestration order sought." In the present case, I have come to the view that the applicant has made out a case that the terms of the composition are unreasonable. In coming to this conclusion, I rely to a large extent upon the views expressed by Jackson J. in the case of Re Richards; Ex parte Beneficial Finance Corporation Ltd., being No. 225 of 1985 Part X, in the Bankruptcy District of the State of Victoria, judgment in which was given on 17 March 1986 (unreported). In that case, his Honour, in his reasons, said:- "In these circumstances, my view is that the case 15S one where, considered as a whole, the composition ought to be set aside and that, to adopt the words of Toohey J. ian Re Doukidis Ex parte Consolidated Constructions Pty Ltd (Unreported 26 June 1985):- 'A greater opportunity to enquire into {the debtor's) affairs and a more comprehensive explanation by the debtor were called for.' I should also add that the creditors are obtaining so little from the composition that I see no harm of any consequence to them being occasioned by the making of an order toan effect different from that resolved upon by them at their meeting." I am conscious of the view expressed by Pincus Jd. in Re Van Twest; Ex parte Tubemakers Australia Ltd. (1386) 69 A.L.R. 573 that the Court should be cautious in substituting 1ts own judgment for that of the creditors. In the present case, the statement of affairs by the debtor discloses a very large sum of money owing to persons who, apparently, are bookmakers, all being debts incurred in 1987. One of those debts is the debt owing to Mr. Faulkner, the present applicant, and the existence of those debts, apparently incurred at a time when the debtor was insolvent, call for further explanation, as does other actions taken in relation to a settlement of the property of the debtor which was made in 1586. By the time the $2,000 has been expended, it seems clear to me that there would be nothing left for the creditors generally. I am also conscious of the fact that very few of the creditors attended the meeting, and although I make no finding as to whether the meeting was properly called, or whether the resolution was properly passed, the fact of there be1ng a small number of creditors, together with tne fact of the very small amount, 1f any, that will be paid to the creditors, leads me to the view that the terms of the composition are unreasonable, that the composition should be set aside and that a sequestration order be made. Orders accordingly. PS I certify that this and the four preceding pages are a true copy of the Reasons for Judgment herein of the Honourable Mr. Justice & M Nerhrop Sar f Uuc Associate Dated: 1S Guy 118 F = EE Fell Madoc! POI te eae me