Re Westman & Anor Ex parte Deputy Commissioner of Taxation [1995] FCA 773

CATCHWORDS BANKRUPTCY - Application for adjournment of creditors petition - meeting of creditors proposed - proposal to procure funding for continuation of litigation in the ACT - no contribution from income or examination of debtors affairs if sequestration order not made - sequestration order would not remove possibility of compromise or arrangement - prejudice to petitioning creditor. Re Lesley Jean WESTMAN and Norman Gordon PASK; Ex parte Deputy Commissioner of Taxation No. QP460 of 1995 Cooper J., Brisbane, 20 September 1995

IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND No. QP460 of 1995 RE: LESLEY JEAN WESTMAN and NORMAN GORDON PASK Debtors EX PARTE: DEPUTY COMMISSIONER OF TAXATION Petitioning Creditor

JUDGE MAKING ORDER:Cooper J. WHERE MADE: Brisbane DATE OF ORDER: 20 September 1995

MINUTES OF ORDER THE COURT GRANTS LEAVE: To the judgment creditor to amend the creditor's petition filed 17 August 1995 in paragraph 1 to read :- "The debtors were at the date of the commission of the acts of bankruptcy specified in paragraphs 4 and 5 of this petition ordinarily residents in Australia". THE COURT ORDERS THAT: 1. The estate of Lesley Jean Westman be sequestrated. 2. The petitioning creditor's costs be costs in the administration of the estate of the bankrupt. Note: Settlement and entry of orders is dealt with in 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF QUEENSLAND No. QP460 of 1995 RE: LESLEY JEAN WESTMAN and NORMAN GORDON PASK Debtors EX PARTE: DEPUTY COMMISSIONER OF TAXATION Petitioning Creditor CORAM: Cooper J. PLACE: Brisbane DATE: 20 September 1995 REASONS FOR JUDGMENT The Deputy Commissioner of Taxation ("the petitioning creditor") has presented a petition for the sequestration of the estate of Lesley Jean Westman ("Ms Westman"). The petition relates to monies owing by her in relation to unpaid group tax payable by Pasdale Pty Ltd for its employees. As a result, the petitioning creditor has obtained a judgment against Ms Westman in the sum of $1,046,173.28 plus interest. A bankruptcy notice was served on Ms Westman on 17 April 1995 and the petition was filed on 17 August 1995 and made returnable today. Ms Westman seeks an adjournment of the petition. The other debtor, Mr Pask, has apparently challenged the fact or validity of the service of the bankruptcy notice and orders have been made by Deputy District Registrar McQuaid in relation to his application in that respect. There is no dispute that the documents in support of the making of a sequestration order in Ms Westman's estate are in order and, subject to the view that I take in relation to the application for an adjournment, a sequestration order would, in the ordinary course of events, be made. On 18 September 1995 Ms Westman executed an authority under s.188 of the Bankruptcy Act 1966 (Cth) ("the Act") requesting Phillip Graham Downie, a registered trustee, to call a meeting of creditors. At the time of execution of that authority Ms Westman completed a statement of affairs and a proposal that her affairs be dealt with under Part X of the Act. Ms Westman proposes that a meeting of creditors be called to consider a deed of arrangement which would provide that all her divisible property (within the meaning of s.116 of the Act) be assigned to her trustee and that funds be provided so that an action in which Ms Westman has an interest in the ACT by Pasdale Pty Ltd against Concrete Constructions Group Pty Ltd can be proceeded with. It is submitted that, if successful, that litigation would result in a judgment in the sum of some $6,000,000.00. As Ms Westman is a shareholder in Pasdale Pty Ltd it is submitted that a significant portion of any judgment sum would be made available for the benefit of her creditors. It is therefore proposed that Ms Westman make her assets available and procure funding by arrangement with other companies such as to bring to her estate the possible benefits of the litigation in the ACT. The application for an adjournment is resisted on the basis that what is proposed would deny to the trustee the ability to obtain any contribution from income in circumstances where it is alleged that the income expected to be earned by Ms Westman would be sufficient to support and fund the litigation in the ACT. This suggests to me that it is envisaged that a not inconsiderable income will be available to Ms Westman. The petitioning creditor also takes objection to the inability of the trustee to carry out any examination as to the affairs of Ms Westman if the application is allowed and submits that the onus is on Ms Westman to show why, at this late stage, the adjournment ought to be granted. It is submitted on behalf of Ms Westman that the proposed deed of arrangement offers to the petitioning creditor and to other creditors the possibility, through the ACT litigation, of benefits which would not otherwise be available. It is further submitted that all the creditors of Ms Westman should be given the opportunity to vote on the proposal in circumstances where their attitudes to it and their relationships with Ms Westman are unknown. The question of whether or not there is a real prospect of creditors receiving the benefit of anything beyond the current assets of Ms Westman is dependent on two things; the ability to fund and the prospects of success in, the ACT litigation. Counsel for Ms Westman sought to tender an opinion of counsel relating to that litigation. I declined to look at that opinion. I take the view that people will not make money available to fund litigation unless there is some reasonable prospect of its success or they have some belief based on reasonable grounds that the litigation has prospects. In this case, there is nothing to suggest that if a sequestration order is made a post-bankruptcy scheme of arrangement or compromise could not be pursued or that funding could not still be supplied. If funding is presently available from the assets and/or the earnings of Ms Westman, it would seem to me that funding would still be available if Ms Westman's estate is sequestrated, subject to any contribution notice. The making of a sequestration order would not therefore cut off the prospect of some arrangement or compromise being agreed between the parties. Conversely, the making of orders for an adjournment may ultimately operate to the prejudice of the petitioning creditor. On balance, I am of the opinion that the interests of the petitioning creditor and of creditors generally are best protected by the making of a sequestration order today, it being then left for Ms Westman to put together a finite proposal and to seek to persuade creditors at the appropriate time to vote in favour of it. If successful in that regard, Ms Westman would then be able to apply for an annulment. Accordingly, I refuse the application for an adjournment. THE COURT GRANTS LEAVE: To the judgment creditor to amend the creditor's petition filed 17 August 1995 in paragraph 1 to read :- "The debtors were at the date of the commission of the acts of bankruptcy specified in paragraphs 4 and 5 of this petition ordinarily residents in Australia". THE COURT ORDERS THAT: 1. The estate of Lesley Jean Westman be sequestrated. 2. The petitioning creditor's costs be costs in the administration of the estate of the bankrupt. I certify that this and the preceding four (4) pages are a true copy of the reasons for judgment herein of his Honour Justice Cooper. Date: 20 September 1995 Associate Counsel for the Applicant: Mr P. Hack Solicitors for the Applicant: Australian Government Solicitor Counsel for the Respondent; Mr P. McQuade Solicitors for the Respondent: James Conomos Lawyers Date of Hearing: 20 September 1995 Place of Hearing: Brisbane Date of Judgment: 20 September 1995