JUDGMENT No. 4-28.28 NOT FOR DISTRIBUTION CATCHWORDS BANKRUPTCY - Composition - approval - failed farming partnership - only prospect of return to creditors - annulment —- to enable extension of activities as consultant - no reason of public interest or commercial morality to contrary. Bankruptcy Act 1966 RE: ALAN WILLIAM BAKER and KERRY EMILY BAKER EX PARTE: ALAN WILLIAM BAKER and KERRY EMILY BAKER No. 611 of 1986 FRENCH J. PERTH 8 AUGUST 1988 ae na er ee yt " IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION ) NOT FOR DISTRIBUTION BANKRUPTCY DISTRICT ) ) ) OF THE STATE OF WESTERN AUSTRALIA No. 611 of 1986 RE: ALAN WILLIAM BAKER and KERRY EMILY BAKER Bankrupts EX PARTE: ALAN WILLIAM BAKER and KERRY EMILY BAKER Applicants MINUTE OF ORDER JUDGE MAKING ORDER: FRENCH J. DATE OF ORDER: 8 AUGUST 1988 WHERE MADE: PERTH THE COURT ORDERS THAT: In each case:- 1. The composition is approved. 2. The bankruptcy is annulled. Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. wera -t oe oe IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA NOT FOR DISTRIBUTION ww SS NO. 611 of 1986 RE: ALAN WILLIAM BAKER and KERRY EMILY BAKER Bankrupts EX PARTE: ALAN WILLIAM BAKER and KERRY EMILY BAKER Applicants CORAM: FRENCH J. 8 AUGUST 1988 EX TEMPORE REASONS FOR JUDGMENT The Court has before it applications for approval of compositions accepted by the creditors of Alan William Baker and his wife, Kerry Emily Baker, respectively and cognate applications under s.74(5) for orders annulling their bankruptcies. Mr and Mrs Baker became bankrupt on 13 October 1986. The Official Receiver's report, which is not disputed, indicates that assets disclosed on the statement of affairs in the joint estate amounted to $541 and liabilities to $57,600. Proofs of debt actually lodged came to $51,479 with a separate sum of $298 owed to the Commissioner for Taxation in the separate estate of Mr Baker. There were no debts in the separate estate of Kerry Emily Baker. Realisations amounted to $2. wa ee ee ee eee sare ea . ; ns wes --- ot 2. At the date of their bankruptcy, Mr and Mrs Baker were 41 and 30 years of age respectively and had three children, then aged 9, 7 and 18 months, all dependent on them for support. At that time Mr Baker was in receipt of unemployment benefits, but had occasional employment as a consultant to companies interested in doing business with Indian interests with whom he had contact and of whom he had useful knowledge. At the time of his bankruptcy that employment occurred only on an irregular basis and would last only two to three weeks at a time. The history of Mr and Mrs Baker's financial decline discloses that in 1977 they leased a farming property in the Newdegate area. Machinery on the farm was very old and as they developed the property and expanded their operation they entered into a number of agreements with finance companies to acquire more up-to-date equipment and vehicles. There were some five contracts, four lease agreements and one hire purchase agreement, which they entered into with Esanda Limited from January 1977 through to September 1979. Although it is unnecessary to set out the details here, substantial sums were involved in each case. On 31 July 1979 they entered into an agreement with the Australian Guarantee Corporation to lease a Ford F250 utility with a total rent amounting to $7,109.49. The amounts outstanding to Esanda and AGC at the date of bankruptcy totalled $38,512.18 and $2,045.61 respectively. apres ore + meme oe me — 3. Mr and Mrs Baker also incurred debts through Wesfarmers Rural by obtaining on credit such requirements as fertilisers and fuel. They had a lease agreement with Wesdelf Discount Co. Ltd, made on 22 June 1978, to obtain a Laverder header. That was later repossessed and, after sale, left a shortfall of $11,559.33. The debt was assigned to Wesfarmers Rural under a recourse arrangement and that company now claims a total debt of $28,480.15. At one stage, Mr Baker attempted to market an invention, said to increase the efficiency of crop harvesting, which was called the "Lakes Bin". He established a company, Lakes Engineering Pty Ltd, to act as wholesaler of the product and he and his wife became directors. Although they initially put their own funds into that venture, finance was later obtained from the Westpac Banking Corporation. The company employed a manager to effect the sale of the product but, according to the Bakers, he mismanaged the operation and left without notice. Asa _ result, they say, of these events and severe droughts affecting the area in which they hoped to sell the product, the company did not operate profitably and went into liquidation on 1 May 1986. In 1979-80, Mr and Mrs Baker exercised an option to purchase their farm property using finance from Westpac, who took a first mortgage over the property. Due to the drought conditions, however, they were unable to meet their commitments and finance companies repossessed their leased machinery and equipment. Within three months of exercising their option to purchase the property, they were forced to sell it and pay out ee a wee "a wre Gs wero oe poser nee once oe we > seme 4, their debt to the Bank. For 12 months after that sale Mr Baker was employed by his brother overseeing cropping and harvesting and Since then has been employed most of the time, occasionally gaining short-term work as a consultant, as I have already indicated. Their low income meant that the Bakers were earning just enough to cover living expenses and to provide for their children. They could not afford to repay their creditors when action was commenced by Esanda to recover their debt and they filed their petitions in bankruptcy. On 4 May 1988 they each lodged with the Official Reciver a composition proposal. The composition proposal in each case is to the same effect:— "Ll, That payment of all 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 Fund. (b) From the sum of $10,000.00 to be provided as set out in paragraph 4 hereof. 4. That the payment of the Composition be secured in the following manner: MONIES ADVANCED BY A RELATIVE" pre tele cen rae en ome oe nee yp er 5. The funds offered were made available by Mr Baker's brother, Mr N. Baker. Mr and Mrs Baker each advanced identical composition proposals and a total of $20,000 has been lodged with the Official Receiver in accordance with their terms. At a meeting of creditors called on 25 May 1988, a resolution was passed initially to adjourn the matter so that certain inquiries could be made about the existence of a house property previously owned by the bankrupts, but a_ reconvened meeting held on 22 June 1988 was informed that the house had reverted in 1981 to mortgagees who would not be making a claim in the bankrupt estate. All creditors then represented assented unanimously to the two compositions. The Official Receiver in his reports to the creditors indicated that in his opinion the proposals were for their benefit. They will result in a payment out of 11 cents in the dollar in each estate, that is to say a total of 22 cents in the dollar in the joint estate. In my opinion, the compositions offer probably the only prospect that the creditors have of getting any return. There being no reason of public interest or commercial morality to the contrary, I propose in each case to approve them. So far as the question of annulment 1s concerned, that arises from an independent discretion that the Court has, not rs 6. necessarily tied to the approval of the composition. However, in my opinion, having regard to the history of the matter, the absence of any suggestion of misconduct or the commission of any offences by the bankrupts, there is no reason of public interest or commercial morality why the bankruptcies should not be annulled. Mr Baker wishes to continue and extend his activities in relation to the consultancy work with Indian businessmen that he is presently doing for a group of companies headed by one Majellan International, and that he would propose to do also with a company or group of companies associated with his brother. He wishes to be in a position to deal with his Indian contacts as amember of the board of those companies that he represents, and it is primarily for this reason that he seeks annulment. He is presently earning $350 a week and paying rent for a house in Applecross at $230 per week. He has no other liabilities. He has no assets. It seems to me that in the circumstances, having arranged with his brother the payment that has been offered to the creditors, he should have the opportunity to make a new start. It is to be hoped that in this case he will show some greater commercial judgment in relation to the undertaking of commitments than he did in connection with the operation of the farming properties. In the circumstances, I propose to order the annulment of each of the bankruptcies. In each case, the composition is approved and the bankruptcy is annulled. en ore et prin eee won rey ee rene ee eee ae reer a oem on coe ee 7. I certify that the preceding six (6) pages are a true copy of the Ex Tempore Reasons for Judgment of his Honour Justice French. Associate: [atanl\ Rawt Date: & - if v8 Counsel for the Applicants: Mr M. de Kerloy Solicitors for the Applicants: Kott Gunning Mr F.D. O'Driscoll appeared on behalf of the Official Receiver. Date of Hearing: 8 August 1988 Date of Judgment: 8 August 1988