CATCHWORDS BANKRUPTCY - Arrangements with Creditors without Sequestration - whether Trustee wrongly admitted proof of debt and permitted party to vote as a creditor on a resolution for a Deed of Arrangement - whether the failure by the debtor to disclose the existence of a creditor's petition to the meeting of creditors should result in the Deed being declared void under s 222 of the Bankruptcy Act 1966. Bankruptcy Act 1966 - s 188, s 222 Re: McLean; Ex parte Friends' Provident Life Office (1992) 108 ALR 360 Equus Financial Services Limited v James Lyfti Sabry and Anor (Unreported, 15 September 1994) RE: IAN McKEAGUE GREEN; EX PARTE GEOFFREY ASHBY v IAN McKEAGUE GREEN and GILES GEOFFREY WOODGATE AS TRUSTEE OF THE ESTATE OF IAN McKEAGUE GREEN No. NX 98 of 1994 FOSTER J 29 AUGUST 1995 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. NX 98 of 1994 ) BANKRUPTCY DIVISION ) RE: IAN McKEAGUE GREEN Debtor EX PARTE: GEOFFREY ASHBY Applicant AND: IAN McKEAGUE GREEN First Respondent AND: GILES GEOFFREY WOODGATE AS TRUSTEE OF THE ESTATE OF IAN McKEAGUE GREEN Second Respondent CORAM: FOSTER J DATE: 29 AUGUST 1995 PLACE: SYDNEY MINUTE OF ORDERS THE COURT ORDERS THAT: 1. The application be dismissed. 2. The applicant pay the costs of this application. Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. IN THE FEDERAL COURT OF AUSTRALIA) ) NEW SOUTH WALES DISTRICT REGISTRY) No. NX 98 of 1994 ) BANKRUPTCY DIVISION ) RE: IAN McKEAGUE GREEN Debtor EX PARTE: GEOFFREY ASHBY Applicant AND: IAN McKEAGUE GREEN First Respondent AND: GILES GEOFFREY WOODGATE AS TRUSTEE OF THE ESTATE OF IAN McKEAGUE GREEN Second Respondent CORAM: FOSTER J DATE: 29 AUGUST 1995 PLACE: SYDNEY REASONS FOR JUDGMENT (Extempore) HIS HONOUR: This is an application under s 222 of the Bankruptcy Act 1966 ("the Act") for a declaration that a Deed of Arrangement made under Part X of the Act on 22 August 1994 between the first respondent, Ian McKeague Green ("the debtor") and, the second respondent, Giles Geoffrey Woodgate ("the Trustee") is void. The application was made on 28 June 1995 by Geoffrey Ashby ("Ashby"), a creditor in the amount of $185,988.03. Ashby was represented at the meeting of creditors on 8 August 1994 at which the special resolution was passed that the debtor execute the Deed of Arrangement. His representative asked certain questions of the debtor at the meeting and voted against the resolution. Ashby had, in fact, taken out and served upon the debtor a creditor's petition dated 25 May 1994. The petition was based upon the debtor's failure to comply with a 28 day Bankruptcy Notice served on him on 14 April 1994. The petition was served on 16 June 1994. On 6 July 1994 the debtor swore an affidavit verifying his Statement of Affairs in which he admitted his unsecured creditors. On the same date he signed the necessary authority under s 188(1) of the Act proposing the Deed of Arrangement and appointing the Trustee. The meeting of creditors to consider his proposed deed was held on 8 August 1994 after Ashby's creditor's petition had been served. This fact, and the associated fact that an act of bankruptcy had been committed in May, was not brought to the attention of the meeting by the Trustee. It is not clear to me whether he was aware of it. Nor was it brought to the attention of the meeting by Ashby's representative who, presumably, would have been aware of it. The debtor's estate has been administered by the Trustee in accordance with the Deed since it was entered into. The application to set the Deed aside has certainly not been brought promptly and no explanation of the delay has been proffered, a fact relied upon by the respondents in opposition to this application. Section 222 of the Act, so far as relevant, provides as follows:- "(1) Where there is a doubt, on a specific ground, whether ... a deed of arrangement was entered into in accordance with this Part or complies with the requirements of this Part, ... a creditor ... may apply to the Court for an order under subsection (2). (2) Upon the hearing of an application made under subsection (1), the Court may, subject to this section, make an order: (a) declaring that the deed ... is void... ... ... (4) Where the Court, on the application of ... a creditor, is satisfied that the debtor: (a) has given false or misleading information in answer to a question put to him with respect to any of his conduct or examinable affairs at the meeting of creditors at which the resolution requiring him to execute the deed ... was passed; or (b) has omitted a material particular from the statement of the debtor's affairs given under subsection 188(2) or included an incorrect and material particular in that statement; the Court may make an order declaring the deed ... to be void... (5) The Court shall not make an order declaring a deed ... to be void on a ground specified in subsection (4) unless it is satisfied that it would be in the interest of the creditors to do so." Ashby seeks that the Court apply this section in his favour on two grounds:- (a) that the Trustee should not have admitted Barob Pty Limited ("Barob") as a creditor of the debtor in the sum of $1,078,934 and entitled to vote as such in favour of the resolution. It was submitted that the debtor had given false or misleading information in this regard and had included incorrect particulars in relation to it in his Statement of Affairs; (b) the debtor's failure to reveal the existence of Ashby's petition was similarly misleading and incorrect. I am satisfied that Ashby bears the onus of establishing these grounds (Re: McLean; Ex parte Friends' Provident Life Office (1992) 108 ALR 360 at 368-370). As to the first ground, it is submitted that Barob's debts should not have been accepted as established. No further material has been placed before me and the question depends upon the material provided to the Trustee. This consists of an agreement between six parties, Bethian Pty Limited and the debtor of one part, Barob Pty Limited and William Robert Ell of the second part and Avoncove Pty Limited and Gelsen Pty Limited of the third part ("the JV agreement"), and statements of account in respect of joint venture projects relating to that agreement. The accounts show that part of the overall debt included a significant sum for what is described as "internal interest". Without the inclusion of this amount Barob's debt would not have provided sufficient voting power in favour of the resolution to prevent it being defeated. The JV agreement has been criticised as providing no proper basis for the creation of a debt by the debtor to Barob. I am unable to agree. It is clearly an agreement drawn up by commercial parties to serve a commercial purpose. It lacks precision, but it is not capable, in my view, of being regarded as too uncertain to be enforced. I am satisfied that it is capable of rendering the debtor liable to Barob for 30 per cent of losses occurring through joint ventures undertaken between them, this being the basis of Barob's claimed debt. Again, the reference in the accounts to "internal interest", although not the subject of precise definition, occurs in a form which indicates readily enough that these charges were genuine and imposed on a regular and understood basis. I am satisfied that the Trustee was not in error in admitting Barob as a creditor in the amount claimed. As to the failure to disclose the existence of Ashby's petition, I have difficulty in seeing how such failure attracts the provisions of s 222. Reliance was placed in this regard on a passage in the judgment of a Full Court of this Court in Equus Financial Services Limited v James Lyfti Sabry and Anor (Unreported, 15 September 1994). However, in my view, that was a very different case and cannot be determinative of the present proceedings. Here Ashby's representative was present at the meeting and could have brought the matter of the petition to its attention if it was felt to be of significance. Moreover, I have nothing before me that satisfies me that it would be in the interests of the creditors that the deed be declared void and the estate be administered in bankruptcy. It appears that the estate is being satisfactorily administered by the Trustee. In my view this late application should not succeed. Accordingly, I dismiss the application. I order the applicant to pay the costs of the application. I certify that this and the preceding five (5) pages are a true copy of the reasons for judgment herein of the Honourable Justice M. L. Foster. Associate: Date: 29 AUGUST 1995 A P P E A R A N C E S APPLICANT: S. COLLEDGE FIRST RESPONDENT: J. ANDERSON SECOND RESPONDENT:M.R. ALDRIDGE DATE OF HEARING: 29 AUGUST 1995 DATE OF JUDGMENT: 29 AUGUST 1995