Heuir, Kenneth Russell & Anor; Ex Parte Bendeich, Graham Ross [1998] FCA 641

FEDERAL COURT OF AUSTRALIA BANKRUPTCY - Application to set aside deed of arrangement - exercise of discretion - whether appropriate in all the circumstances to set aside deed and make sequestration orders. Bankruptcy Act 1966 (Cth) s 236 Re Doukidis; Ex parte Consolidated Construction Pty Ltd v Nelson (unreported, Federal Court of Australia, 26 June 1985) - Appl Re Tripodi; Ex parte Col Johnson Pty Ltd (unreported, Federal Court of Australia, 22 January 1987) - Appl Musolimo v Sidiropolous (1991) 101 ALR 235 - Appl Re Gye and Perkes; Ex parte McIntyre (1989) 89 ALR 460 - Appl Khera v National Australia Bank (1996) 71 FCR 133 - Appl Williamson; Ex parte Wearne (1980) 43 FLR 305 - Appl Re Dolman; Ex parte Elder Smith Goldsbrough Mort Ltd (1967) 10 FLR 38 - Appl Chiragakis v Deputy Commissioner of Taxation (1986) 68 ALR 527 - Appl KENNETH RUSSELL HEUIR AND DIANA LESLEY HEUIR; EX PARTE GRAHAM ROSS BENDEICH No QG 7029 of 1998 COOPER J BRISBANE 10 JUNE 1998

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QG 7029 of 1998

BETWEEN: kenneth russell heuir and diana lesley heuir

bankrupts

ex parte graham ross bendeich

applicant

JUDGE: COOPER J

DATE OF ORDER: 10 JUne 1998

WHERE MADE: BRISBANE

THE COURT ORDERS THAT: 1. The application is dismissed. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA

QUEENSLAND DISTRICT REGISTRY QG 7029 of 1998

BETWEEN: kenneth russell heuir and diana lesley heuir

bankrupts

ex parte graham ross bendeich

applicant

JUDGE: COOPER J

DATE: 10 JUne 1998

PLACE: BRISBANE

REASONS FOR JUDGMENT The applicant is the trustee under a Deed of Arrangement ("the Deed") executed by Kenneth Russell Heuir and Diana Lesley Heuir ("the debtors") on 13 August 1997. The applicant seeks orders that the Deed be set aside pursuant to s 236(1) of the Bankruptcy Act 1966 (Cth) ("the Act") and that a sequestration order be made against each of the debtors. Although served, the debtors did not appear on the hearing of the application. Section 236 of the Act, so far as is relevant, provides :- "236(1) The Court may, upon application by the trustee, a creditor or the debtor, or, if the debtor has died, the person administering the estate of the debtor, if it is satisfied: (a) that the debtor, or, if the debtor has died, the debtor or the person administering the estate of the debtor has failed to carry out or comply with a provision of the deed of arrangement; (b) that the deed of arrangement cannot be proceeded with without injustice or undue delay to the creditors, the debtor or, if the debtor has died, the estate of the debtor; or (c) that for any other reason the deed of arrangement ought to be terminated; make an order terminating the deed. 236(2) The Court shall not make an order terminating a deed on the ground specified in paragraph (1)(a) or (c) unless it is satisfied that it would be in the interests of the creditors to do so. 236(3) The trustee or a creditor may include in an application under subsection (1) an application for a sequestration order against the estate of the debtor and, if the Court makes an order on the first-mentioned application terminating the deed of arrangement, it may, if it thinks fit, forthwith make the sequestration order sought. ....." The basis upon which the application is brought is set forth in the applicant's affidavit in support. Shortly put, it is that the creditors voting at a meeting of creditors on 24 July 1997 to consider the proposal that the debtors execute a Deed of Arrangement :- (a) had regard to an appraisal by Ray Dank Real Estate in an amount of $275,000 for a property at 21st Avenue, Mount Isa tabled by the Controlling Trustee at the meeting of creditors; (b) expected, in the light of this appraisal and the other property of the debtors, to receive a dividend of 100˘ in the dollar or very near to it; and (c) would not have voted in favour of the proposed Deed of Arrangement if they did not have such an expectation. It was submitted by counsel for the applicant that the applicant :- "... contends that this deed should be terminated principally on the grounds that the resolution was passed in the belief that the only real property of the debtors, being the shop and stock was worth, at least at the outset, nearly $300,000 - that's what the debtors said. And then at the meeting it was represented to those that attended that it was worth $275,000." The property at 21st Avenue, Mount Isa did not achieve the appraised figure of $275,000 and upon sale only made $200,000. The achieved sale price was in accordance with a valuation obtained by the applicant from HTW Valuers on 11 September 1997. On 21 October 1997 the applicant wrote to the debtors asking whether they were in a position "to carry out the terms of the Deed by ensuring the creditors ultimately receive 100˘ in the dollar." That letter was not responded to. The applicant has calculated the likely dividend to be no more than approximately 25.7˘ in the dollar. The Deed provided, so far as is presently relevant :- "... 2. The Debtors convey and assign to the Trustee all their divisible property more particularly described in Schedule A hereto UPON TRUST to deal with the same in accordance with this Deed. 3. The Trustee accepts appointment as Trustee of this Deed and the conveyance and assignment of the said property upon trust hereinafter set out. 4. The debtors in conjunction with the Trustee shall get in and realise the assets of Combined Fuel and Freight as identified in Schedule A on the following basis :- (i) These assets are to be sold by private treaty within a period of six (6) weeks from the date of the Deed; (ii) If not so realised, then these assets are to be sold by general auction. 5. If the proceeds of sale of the assets referred to in clause 4 are insufficient or likely to be insufficient in the opinion of the trustee to enable a dividend of 100 cents in the dollar to be paid to all unsecured creditors in accordance with the terms of this Deed, then all other assets of the debtors shall subsequently be sold by the debtors in conjunction with the Trustee on the following basis :- (i) These assets are to be sold by private treaty within a period of six (6) weeks; (ii) If not so realised, then these assets are to be sold by general auction. 6. Notwithstanding anything contained in clause 4 and 5 above, the Trustee shall have absolute power and discretion to deal with the assets in any manner which the Trustee regards as being in the interests of creditors, including extending the period of sale mentioned in paragraphs 4(i) and 5(i) above. ..... 18. Each of the debtors covenant to pay to the Trustee an amount equal to the income contributions which they would be required to pay to a Trustee in Bankruptcy in the event that they had been made bankrupt, for the period of three years beginning on the day this Deed is executed. 19. For purposes of this clause, Part VI Division 4B of the Act shall apply. 20. Each of the debtors covenant to provide the Trustee upon request by the Trustee all information which they would be required to provide pursuant to Part VI Division 4B and in particular Sections 139U and 139V if they were made bankrupt. 21. The Trustee shall apply any moneys received by him pursuant to this Deed in making payments in the order described by sections 108 to 114 inclusive of the Act as modified by section 237(2) thereof. 22. The Trustee, at his discretion may from time to time hereunder declare and pay any dividend or dividends pro rata to the creditors of the debtors whose Proofs of Debt have been admitted by the Trustee to rank for a dividend. 23. The Trustee shall certify that the debtors have complied with the Deed provided that the debtors have in all respects complied with their obligations under this Deed and the Act, and then only after one of the following events occurs :- (i) a dividend of 100 cents in the dollar is paid to unsecured creditors; or (ii) all of the debtors' divisible assets assigned under this Deed have been realised by the Trustee. ..." The intended operation of the Deed was that all property of the debtors would be assigned by them to the applicant (clause 2) and that recourse would be had first to the assets of the business carried on by the debtors under the style or firm name of "Combined Fuel and Freight", to seek to achieve a distribution of 100˘ in the dollar (clause 4). If that could not be achieved, then all other assets of the debtors, including those specified in Annexure "A" to the Deed, were to be sold (clause 5). Included within the other assets were the real properties at 21st Avenue, Mount Isa and Bulolo Street, Mount Isa. In addition, the debtors were liable to make income contributions for three years from the date of execution of the Deed (clause 18). Provided the debtors had complied with their obligations under the Deed and the applicant certified to that fact when the unsecured creditors received a dividend or dividends totalling 100˘ in the dollar or all of the divisible assets had been realised by the applicant, the debtors were released from all provable debts owed by them (clauses 23 and 24). The debtors were not obliged under the Deed to do more than assign over all of their property and make the income contributions if required to do so. They did not warrant that the assets were sufficient to yield a dividend of 100˘ in the dollar or undertake to make good any shortfall. The debtors completed a Statement of Affairs dated 23 June 1997. In that document they ascribed a value of $300,000 to the property at 21st Avenue, Mount Isa and also indicated that it was subject to a security in favour of the National Australia Bank for an amount of $105,000. The debtors' controlling trustee, Mr Craig Bax, recommended acceptance by the unsecured creditors of the debtors' proposal. In a report given pursuant to s 189A of the Act, Mr Bax said, in part :- "5.5 Valuations In the limited time available to the Controlling Trustee attempts have been made by the Controlling Trustee to value the material assets listed by the debtors in their Statement of Affairs. In the time available it has not been possible to obtain formal sworn valuations of the assets. The Controlling Trustee has attempted to independently verify the value attributed to any material asset which appeared in the Statement of Affairs. Full particulars of this independent verification (where possible) appear in Schedule F to this my report. Also included with Schedule F is a listing of any verification where possible of major liabilities claimed by the debtors which appear in the Statement of Affairs. ..... 10 QUALIFICATIONS ACCOMPANYING AND FORMING PART OF THIS REPORT ..... Creditors should therefore note the following: (a) The information and values disclosed in the debtors Statement of Affairs have been supplied by the Debtors and I have verified as far as practicable in the time available to me the correctness thereof. (b) I have not investigated the financial affairs of the Debtors save as mentioned in the Report and the Scheduled [sic] thereof. (c) Creditors should make their own enquiries in regard to the affairs of the Debtors however any material omissions or misstatement by the Debtors which are brought to my attention will be investigated as far as possible prior to the meeting. (d) As indicated above I have attempted to verify the accuracy of the information disclosed in the Debtors Statement of Affairs, however I am not able to express with certainty an opinion as to whether the Statement of Affairs would present a true and fair view of the financial position of the Debtors. ....." Schedule F to the controlling trustee's report provided :- " VALUATIONS 1. ASSETS The following material assets of the debtor have had independent verification of their value :- Description of Asset Value as per Statement of Affairs Independent Assessment of Value $ Source of Statement of Independent Assessment