IN THE FEDERAL COURT OF AUSTRALIA ) LIMITED DISTRIBUTION ) BANKRUPTCY DISTRICT ) ) ) OF THE STATE OF WESTERN AUSTRALIA NO. 200 of 1987 RE: DAVID ALAN ZOHAR Bankrupt EX PARTE: DAVID ALAN ZOHAR Applicant MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 11 JULY 1988 WHERE MADE: PERTH THE COURT ORDERS THAT: 1. The composition accepted by the creditors of David Alan Zohar by special resolution passed at a meeting of the creditors on 7 June 1988 be approved. 2. The bankruptcy of David Alan Zohar be annulled. Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT LIMITED DISTRIBUTION OF AUSTRALIA ) ) BANKRUPTCY DISTRICT ) ) ) OF THE STATE OF WESTERN AUSTRALIA NO. 200 of 1987 RE: DAVID ALAN ZOHAR Bankrupt EX PARTE: DAVID ALAN ZOHAR Applicant CORAM: FRENCH J. 11 JULY 1988 EX _TEMPORE REASONS FOR JUDGMENT This is an application brought under s.74 of the Bankruptcy Act 1966 for approval of a composition. The bankrupt also seeks an order that his bankruptcy be annulled. Mr Zohar became bankrupt on his own petition on 16 March 1987. The report of the Official Trustee discloses that he is a married man, aged 38 years, and that his wife, Julie Zohar, 35 years, is also a bankrupt. They have one child aged 4 years, who is partly dependent on him for support. He is presently employed as a casual relief teacher with the Education Department, receiving a net wage of $100 per day when on call and otherwise as a mathematics tutor on a net wage of about $300 per week. He pays rent of $130 per week for his residence. The background to his bankruptcy, which is also set out in the report, discloses that he had been employed full time as a teacher with the Education Department for 6 years up until 1983. In June of that year he and his wife began trading in partnership as "Australian School of Mathematics", initially operating from home and then from rented premises in Palmyra and Subiaco. In June 1984, Mr Zohar' resumed teaching full time with the Education Department at Governor Stirling Senior High School, but continued his tutoring on a part-time basis from home. The income that he could earn from that activity declined as he was unable to commit the time required to private pupils. In August 1985 he stopped full time teaching and became a casual relief teacher and resumed full time tutoring from home. However, the income generated by that activity was not as anticipated and indeed, was substantially reduced for long periods during the Christmas holidays. He did attempt to obtain employment in Sydney and Melbourne in December 1986 and subsequently sought assistance from Melsom Robson & Co. with a view to seeking relief under Part X of the Act. He had incurred liabilities by way of personal loans from the Perth Building Society and the W.A. Teachers Credit Society, in the sums of $5,000 and $1,700 respectively. Those amounts together with the use of various credit cards had enabled him to maintain mortgage repayments on his house at Noranda. In January 1987, however, the W.A. Teachers Credit Society issued a notice of demand and commenced proceedings under their mortgage. That mortgage over the family home, which had been taken out in December 1984 to finance construction of the house, secured a principal of $61,000 repayable initially at $840 per month, but later at $944 monthly. A second mortgage to the ANZ Bank secured an advance of $25,000, borrowed in October 1985. $10,000 had been for home improvements and $15,000 to acquire shares in a company called Promin Holdings Limited. The ultimate shortfall to the ANZ Bank after sale of the house in August 1987 was $25,162.00. 3. As he was unable to pay his creditors, Mr Zohar filed a petition in bankruptcy on 16 March 1987. His statement of affairs disclosed assets amounting to $6,650 and liabilities totalling $36,995. To the present date 8 proofs of debt totalling $40,665 have been received in the estate, of which five, for a total of $33,167, have been admitted to rank for dividend. Three, amounting to a total of $7,498, have not, at the date of the report, been resolved. There have apparently been realisations of $1,556 from the sale of shares in Promin Holdings Limited. However, the Official Trustee subsequently formed the view that these moneys were properly part of the bankrupt estate of Mr Zohar's wife and they have since been transferred to that estate. There are unrealised some 9,600 options in Promin Holdings Limited, but these, it is said, have no market value. No dividend has as yet been paid in the bankruptcy. The terms of the composition, 1n substance, amount to an offer to contribute to his creditors $10,000 which moneys are _ to be provided by Mr Phillip Finkelstein. The money has' evidently already been paid to the Official Trustee who holds it in the Common Investment Fund and reports that it is sufficient to pay a dividend of 27 cents in the dollar to all proved and _ known creditors. The composition proposal was put to a meeting of creditors held on Tuesday, 7 June 1988. Its terms were as follows:- 4. "1. 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 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 my estate held by the Official Trustee in the Common Investment Funds. (b) From the sum of $10,000 to be provided as set out in paragraph 4 hereof. 4. That the payment of the Composition be secured in the following manner: Loan from Phillip Finkelstein of 7 Wren Street, Dianella 6062 (cheque attached). Mr P.W. Finkelstein expects this money to be returned if my creditors do not accept the Composition. ie. it is only offered subject to an approval of the Composition by Creditors." At a meeting of the creditors held on Tuesday, 7 June 1988, a special resolution was passed in accordance with sub-s.74(4) of the Bankruptcy Act accepting the proposal and the Court is now asked to give its approval to that composition. The Official Trustee, in his report to the creditors, expressed the opinion that the terms of the proposal would be for the benefit of the general body of creditors. In his report to the Court he has stated that he is not aware that the conduct of the bankrupt either prior to or since the date of bankruptcy has been other than satisfactory. 5. The bankrupt attributes his bankruptcy to the failure of his investment in the company, Promin Holdings Limited, and the incurring of excessive liabilities in completing and furnishing his former house at 9 Gough Place, Noranda. According to the Official Trustee, the major causes of bankruptcy are as stated by the bankrupt, with the additional contributing factors of long periods of unemployment and excessive use of credit facilities. There is no suggestion that any offences have been committed by the bankrupt and all non-assenting creditors have been advised of the application. In my opinion, it is established by these materials that the composition will be for the benefit of the creditors and there is no consideration of public interest or other relevant factor which would require me to withhold the Court's approval to that composition. I will order that the composition accepted by the creditors of David Alan Zohar by special resolution passed at a meeting of creditors on 7 June 1988 be approved. The second limb of the application is for annulment of the bankruptcy. This question raises a separate exercise of discretion by the Court under s.74 and it has been said frequently that the fact of approval of the composition does not necessarily lead to the consequence that the bankruptcy be annulled. Questions of public interest and commercial morality are relevant to that later discretion. In my opinion, however, there is no issue of public interest or commercial morality disclosed which would prevent me from making the order that is sought, and I will order that the bankruptcy of David Alan Zohar be annulled. I certify that the preceding five (5) pages are a true copy of the Ex tempore Reasons for Judgment of his Honour Justice French. Associate: DebewS~ Date: \ SudQ (ASF Counsel for the Applicant: Mr G.L. Kelly Solicitors for the Applicant: Messrs. Marks Healy & Sands Mr R.J. Busher appeared on behalf of the Official Receiver Date of Hearing: i1 July 1988 Date of Judgment: 11 July 1988