Re Behan, D. v Ex parte Pioneer Concrete (Qld) Pty Ltd [1995] FCA 564

CATCHWORDS

BANKRUPTCY - Bankruptcy notice issued on basis of judgment debt obtained against company director guaranteeing debt of company - whether company administration operates to stay execution of judgment debt - whether bankruptcy proceedings involve enforcement of guarantee - merger of rights under guarantee with judgment - s440J Corporations Law. Corporations Law: ss436A, 440D, 440F, 440G, 440J. Bankruptcy Act 1966: (Cth) s44(1)(g) Ex parte Fewings; In re Sneyd (1883) 25 ChD 338; applied. In Re European Central Railway Company; Ex parte Oriental Financial Corporation [1876] 4 ChD 33; applied. In Re Jenkins (1889) 15 VLR 271; approved. McDonald v Scobie [1980] QdR 477; approved. Wren v Mahoney (1972) 126 CLR 212; referred to. Bayne v Blake (1909) 9 CLR 360; discussed. RE DARRELL BEHAN; EX PARTE PIONEER CONCRETE (QLD) PTY LTD No QN 777 of 1995 CORAM: HILL J PLACE: BRISBANE DATED: 3 AUGUST 1995

IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) BANKRUPTCY DISTRICT OF THE ) No. QN 777 of 1995 STATE OF QUEENSLAND )

RE: DARRELL BEHAN Debtor EX PARTE: PIONEER CONCRETE (QLD) PTY LTD Creditor

CORAM: HILL J PLACE: BRISBANE DATED: 3 AUGUST 1995 MINUTES OF ORDER THE COURT ORDERS THAT: (1) The application be dismissed.

(2) The debtor pay the creditor's costs of the application. 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 ) No. QN 777 of 1995 STATE OF QUEENSLAND )

RE: DARRELL BEHAN Debtor EX PARTE: PIONEER CONCRETE (QLD) PTY LTD Creditor CORAM: HILL J PLACE: BRISBANE DATED: 3 AUGUST 1995 REASONS FOR JUDGMENT Mr Behan ("the debtor") applies to set aside a bankruptcy notice dated 13 June 1995 issued at the request of Pioneer Concrete (Qld) Pty Ltd ("the creditor"). The debtor is a director of Casino Developments Pty Ltd ("the Company") and by a deed of guarantee dated 24 April 1994 guaranteed the creditor the due and punctual payment of all moneys at that date or thereafter owing by the Company as if the principal debtor. The guarantee was expressed specifically as not being discharged in the event of, inter alia, the liquidation of the Company. The creditor commenced proceedings against the debtor in the District Court at Brisbane alleging moneys owing under the guarantee in respect of non-payment by the Company for goods supplied to the Company by the creditor. On 28 April 1995 the creditor obtained a default judgment against the debtor in the sum of $41,139.95, together with $585.50 for costs. On 22 May 1995 administrators were appointed by the directors of the company pursuant to the provisions of s436A of the Corporations Law ("the Law"). That administration, which began on that day, continued until 7 July 1995 when a deed of company arrangement in respect of the company was executed: s435C of the Law. On 13 June 1995 a bankruptcy notice was issued against the debtor. That notice was served upon the debtor on 16 June 1995. It was based on the default judgment obtained by the creditor. It is the submission of the debtor that the bankruptcy notice should be set aside because both at the time the bankruptcy notice issued and at the time of service, the judgment upon which the bankruptcy notice was founded, was by force of s440J of the Law, stayed. The short point at issue between the parties is whether s440J of the Law had this effect. Section 440J forms part of a group of sections providing for a voluntary scheme of administration for companies in financial difficulties. Provision is made for the appointment of an administrator whose task it is to take control of the company's business, property and affairs, to conduct an investigation, inter alia, into the financial circumstances of the company and to determine whether it would be in the interests of creditors for a deed of company arrangement to be entered into or for the company to be wound up. The administrator reports ultimately to the creditors, setting out the views arrived at and creditors may then resolve, pursuant to s439C of the Law, either to execute a deed of company arrangement, to terminate the administration or to wind up the company. In any of these three events the administration then comes to an end. Section 440J is contained in Division 6 of Part 5.3A of the Law, concerned, as the heading to that Division indicates, with the protection of the company's property during administration. Thus s440D operates during the administration to prohibit either proceedings in a court against the company or proceedings in relation to any of the property of the company from being begun or proceeded with other than with the written consent of the administrator or the leave of the court. Section 440F then prohibits any enforcement process in relation to the property of the company being begun or proceeded with except with the leave of the court or in accordance with such terms as the court imposes. Section 440G deals specifically with the prevention of execution against a company in administration. It is in this context that s440J then provides as follows: "(1)During the administration of a company: (a) a guarantee of a liability of the company cannot be enforced, as against: (i) a director of the company who is a natural person; or (ii)a spouse, de facto spouse or relative of such a director; and (b) without limiting paragraph (a), a proceeding in relation to such a guarantee cannot be begun against such a director, spouse, de facto spouse or relative; except with the leave of the Court and in accordance with such terms (if any) as the Court imposes. (2) While subsection (1) prevents a person ("the creditor") from: (a) enforcing as against another person ("the guarantor") a guarantee of a liability of a company; or (b) beginning a proceeding against another person ("the guarantor") in relation to such a guarantee; section 1323 applies in relation to the creditor and the guarantor as if: (c) a civil proceeding against the guarantor had begun under this Law; and (d) the creditor were the only person of a kind referred to in that section as an aggrieved person. (3) The effect that section 1323 has because of a particular application of subsection (2) is additional to, and does not prejudice, the effect the section otherwise has. (4) In this section: "guarantee" in relation to a liability of a company, includes a relevant agreement (as defined in section 9) because of which a person other than the company has incurred, or may incur, whether jointly with the company or otherwise, a liability in respect of the liability of the company; "liability" means a debt, liability or other obligation."