FEDERAL COURT OF AUSTRALIA BANKRUPTCY - Bankruptcy Act 1966 (Cth) - creditor's petition - application of debtors that hearing of petition be adjourned to allow for the consideration of a Part X proposal - no general practice of the Court to adjourn hearings of petitions where s 188 authority has been signed - existence of authority a relevant circumstance to be considered - where amount offered in support of Part X proposal a trivial amount. Bankruptcy Act 1966 (Cth), ss 52, 188 Field v Commercial Banking Co of Sydney Ltd (1978) 22 ALR 403, applied Re Richards; Ex parte Beneficial Finance Corporation Ltd (unreported, Jackson J, 17 March 1986), cited Re Emmett; Ex parte Beneficial Finance Corporation Ltd (unreported, O'Loughlin J, 16 December 1991), cited Re Brennan; Ex parte Stokes (Australasia) Limited (unreported, Morling J, 31 May 1988), cited Re Codrington; Ex parte Don McKay Tourist & Charter Pty Ltd (unreported, Burchett J, 1 September 1989), cited Re Lockett; Ex parte Northern Equity Limited (unreported, French J, 6 April 1992), cited NZI Capital Corporation Ltd v Lancaster (1991) 30 FCR 441, cited Re Eustice (unreported, Branson J, 15 July 1994), cited JOHN HOOPER v DAVID & GEORGIE EWINS NG 7962 of 1997 BRANSON J SYDNEY 11 DECEMBER 1997 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 7962 of 1997 BETWEEN: JOHN HOOPER Applicant AND: DAVID AND GEORGIE EWINS Respondent JUDGE(S): BRANSON J DATE OF ORDER: 11 december 1997 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. The estates of David Ewins and Georgie Ewins be sequestrated. 2. The costs of the petitioning creditor, of and incidental to the petition, be paid in accordance with the Act. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 7962 of 1997 BETWEEN: JOHN HOOPER Applicant AND: DAVID AND GEORGIE EWINS Respondent JUDGE(S): BRANSON J DATE: 11 december 1997 PLACE: SYDNEY REASONS FOR JUDGMENT On 17 July 1997, the petitioning creditor caused a bankruptcy notice to issue to the respondents. The bankruptcy notice claimed payment of a debt of $148,003.95 being the amount of a judgment obtained by the petitioning creditor against the respondents in the District Court of New South Wales on 16 July 1997. Each of the respondents was served with the bankruptcy notice on 22 July 1997. On or about 23 September 1997, the respondents signed a form of authority by which they purported, pursuant to s 188 of the Bankruptcy Act 1966 (Cth) ("the Act"), to name and authorise the Official Trustee to call a meeting of their creditors and to take control of their property. On 17 November 1997, they signed a second purported authority pursuant to s 188 of the Act naming and authorising Warren Pantzer ("Mr Pantzer") to call a meeting of their creditors and to take control of their property. On 21 November 1997, I answered as a separate question before the hearing of the creditor's petition, the following question: "Whether the authority dated 17 November 1997 signed by the debtors naming and authorising Warren Pantzer to call a meeting of the debtors' creditors and to take control of the debtors' property is a valid authority?" The answer which I gave, for the reasons published on that day, was "yes". The creditor's petition came on for hearing on 4 December 1997. The only matter in dispute on that day was whether the hearing of the petition should be adjourned to enable a meeting of creditors to be called by Mr Pantzer. It was accepted by the respondents' legal representative that there was before the Court satisfactory proof of the matters specified by s 52(1) of the Act. No attempt was made to satisfy the Court that the respondents are able to pay their debts (s 52(2)(a) of the Act). The only matter identified as a cause upon which the Court might be satisfied that a sequestration order ought not to be made was the existence of the s 188 authority given by the respondents to Mr Pantzer (s 52(2)(b) of the Act). There is no general practice in the Court to adjourn the hearing of a creditor's petition merely upon evidence that the debtor has executed an authority under s 188 of the Act (Field v Commercial Banking Co of Sydney Ltd (1978) 22 ALR 403 at 411). In Field v Commercial Banking Co of Sydney Ltd, C A Sweeney J, with whom Franki J agreed, acknowledged that on an application for the adjournment of a creditor's petition, the execution of a s 188 authority was a circumstance to be looked at in the general context of the individual case. He identified other relevant circumstances as follows: "(1) The course of dealings between the parties, from the time when the obligation to the petitioning creditor is said to have arisen to the date of the hearing. (2) The attitude to the application of the petitioning creditor, as prima facie, on proof of the matters mentioned in s 52(1) of the Bankruptcy Act 1966, the court will proceed to make an order for sequestration (see Rozenbes v Kronhill (1956) 95 CLR 407). (3) The general financial position of the debtor. (4) The relation between the debt of the petitioning creditor and the total liabilities of the debtor, as it may be seen, for example, that the petitioning creditor's opposition would be sufficient to defeat any special resolution proposed at a creditor's meeting. (5) Any attitude to the application disclosed by other creditors. (6) Any evidence bearing upon the question whether it would be for the advantage of the creditors that the debtor's affairs be administered under Pt X of the Act. (7) The likelihood that the debtor would be able to place before a meeting of creditors a particular proposal, or evidence of his general circumstances, calculated to persuade them to vote for the administration of his affairs under Pt X." David Ewins ("Mr Ewins") has given affidavit evidence that he and his wife owe unsecured creditors a total amount of approximately $1.356 million. Mr Ewins gave oral evidence that the amount proposed to be made available for the purposes of a deed of arrangement under Part X of the Act is $25,000.00. That is, even if no amount is allowed for the costs of the controlling trustee, unsecured creditors would receive in the order of 0.02 cents in the dollar. It seems plain that no real benefit will flow to unsecured creditors from the Part X arrangement proposed by the respondents. In a number of cases in this Court, the fact that the amount offered pursuant to a composition in settlement of debts is trivial has been regarded as a factor telling in favour of the setting aside of a composition so as to allow the investigatory procedures of the Act to be invoked. (See, for example, Re Richards; Ex parte Beneficial Finance Corporation Ltd (unreported, Jackson J, 17 March 1986); Re Emmett; Ex parte Beneficial Finance Corporation Ltd (unreported, O'Loughlin J, 16 December 1991); Re Brennan; Ex parte Stokes (Australasia) Limited (unreported, Morling J, 31 May 1988); Re Codrington; Ex parte Don McKay Tourist & Charter Pty Ltd (unreported, Burchett J, 1 September 1989); Re Lockett; Ex parte Northern Equity Limited (unreported, French J, 6 April 1992); NZI Capital Corporation Ltd v Lancaster (1991) 30 FCR 441; and Re Eustice (unreported, Branson J, 15 July 1994)). By analogy of reasoning it will also be a relevant factor to be taken into account where the adjournment of the hearing of a petition is sought to allow a creditors' meeting to be held. In this case, in addition to the trivial amount presently proposed to be offered for a Part X arrangement, it is appropriate for me to take into account that Mr Ewins' oral evidence suggests the likelihood of preferential payments having been made by the respondents to Mr Ewins' stepmother. In addition, some confusion surrounds the identification of the respondents' unencumbered assets. So far as Mr Ewins is concerned, the confusion arises first, from conflicting evidence as to the ownership of certain shares in the company Moorlife International Pty Limited. Although Mr Ewins over a number of years signed annual returns for Moorlife International Pty Limited which recorded that he owned 49 of the 50 shares issued by the company, and that his mother Lorraine Gwenneth Nunn ("Mrs Nunn") owned the remaining one share, he now asserts in his statement of affairs, and has placed in evidence certain documents which provide some prima facie support for his assertion, that he owns only one share in Moorlife International Pty Limited and that Mrs Nunn owns 49 shares in the company. Secondly, so far as Mr Ewins is concerned, there is an unresolved issue as to whether his mother holds an enforceable unregistered second mortgage over his home. So far as Georgie Ewins is concerned, some confusion surrounds the value of her interest in the estate of her deceased mother. The petitioning creditor contends that the evidence before me establishes that no special resolution requiring the respondents to execute a deed of arrangement under Part X of the Act or accepting a composition will be passed if a creditors' meeting is called by Mr Pantzer. I am not satisfied that this is so, although I accept that it is far from clear that any such special resolution would be passed. I note that certain of the respondents' unsecured creditors appeared on the hearing of the petition to support the respondents' application for the hearing of the petition to be adjourned. Having considered the whole of the evidence in this case, including the factors referred to in Field v Commercial Banking Co of Sydney Ltd, I decline to adjourn the hearing of the creditor's petition. As is mentioned above, it was conceded on behalf of the respondents that there was satisfactory proof before the Court of the matters specified by s 52(1) of the Act. I am not satisfied that the respondents are able to pay their debts or that there is any other sufficient cause for a sequestration order not to be made. I make a sequestration order against the estates of David Ewins and Georgie Ewins. I order that the costs of the petitioning creditor, of and incidental to the petition, be paid in accordance with the Act. I certify that this and the preceding four (4) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson Associate: Dated: Counsel for the Applicant: Mr D. Smallbone Solicitor appearing for the Respondent: Mr R. Legg of Legg & Burridge Solicitor appearing for certain unsecured creditors: Mr E. Neumann of Craddock, Murray & Neumann Date of Hearing: 4 December 1997 Date of Judgment: 11 December 1997