Commonwealth Bank of Australia v Robson

Legislative scheme 5 Relevantly, s 188A(2)(f) required a personal insolvency agreement to specify the conditions, if any, for the agreement to come into operation. The trustee (called "the controlling trustee" in the Act) was empowered by force of s 190(2)(b) to make such inquiries and investigations in connection with the debtor's property and examinable affairs as the trustee considered necessary. The duties of the trustee imposed by s 190A(1) included: "(f) making appropriate inquiries and investigations in connection with the debtor's property and examinable affairs; … (h) exercising powers and performing functions in a commercially sound way;" 6 Importantly, s 195(3) provided: "(3) The debtor shall, at the meeting, answer, to the best of his or her knowledge and ability, all questions put to him or her by the controlling trustee or by a creditor with respect to his or her conduct and examinable affairs." 7 Next, ss 204 and 222 relevantly provided: "204 Resolution for personal insolvency agreement (1) The creditors may, at a meeting called in pursuance of an authority under section 188, by special resolution: (a) where the debtor's property is subject to control under this Division, resolve that the debtor's property be no longer subject to control under this Division; (b) require the debtor to execute a personal insolvency agreement; or (d) require the debtor to present a debtor's petition within 7 days from the day on which the resolution was passed. (2) A special resolution requiring a debtor to execute a personal insolvency agreement must specify the provisions to be included in the agreement. … 222 Court may set aside personal insolvency agreement (1) Setting aside on grounds of unreasonableness etc. If a personal insolvency agreement is in force, the Court may, on application by: … (c) a creditor; make an order setting the agreement aside if the Court is satisfied that: (d) the terms of the agreement are unreasonable or are not calculated to benefit the creditors generally; or (e) for any other reason, the agreement ought to be set aside. … (5) Setting aside on grounds of false or misleading information etc. If a personal insolvency agreement is in force, the Court may, on application by: … (c) a creditor; make an order setting the agreement aside if the Court is satisfied that: … (e) the debtor has: (i) omitted a material particular from the statement of the debtor's affairs given under subsection 188(2C) or (2D); or (ii) included an incorrect and material particular in that statement; … (6) The Court must not make an order under subsection (5) unless it is satisfied that it would be in the interests of the creditors to do so." (bold emphasis added)

Background 8 There is a large amount of background to the proceedings, but, it suffices for present purposes, to summarise that as follows. In February 2013, the Bank's proceeding for a sequestration order against the debtor's estate was part heard in the then Federal Magistrates Court. The Bank's proceedings on a creditor's petition were based on judgment debts totalling $1,571,958.88. The proceeding resumed part heard on 5 February 2013 and on that day the debtor swore an affidavit as to his assets and liabilities. He asserted in that affidavit that he had net assets of $2,909,000 and gross assets of about $6.2 million, with liabilities of $3,287,000. That account excluded any reference to his indebtedness, if any, to the Bank. He claimed that he owed his parents $2.7 million, as a non-current liability, and a further $500,000 was owed to his daughter, Kerri Shannon. The affidavit listed other creditors as being owed $11,000. 9 So, it must have come as quite a shock to the Bank to receive, about three and a half months later, the debtors' statement of affairs dated 21 May 2013 made under s 188(2C) of the Act in support of his proposed personal insolvency agreement in which he listed his assets as virtually nil and his creditors at $26,739,922, again, excluding any liabilities to the Bank. The statement of affairs was materially inaccurate in that it failed to disclose that in the previous five years the debtor had disposed of three assets, namely: his half share in a property at 8 Fleeting Court, Tuncurry in July of 2009, that had realised for his wife, who is a bankrupt, and himself $950,000; 100 shares in a company called Unhappy Customers Litigation Pty Limited that he transferred to his daughter, Paige, on 4 February 2013; and a cause of action that he and one of his companies, now in liquidation, 33 Electra Pty Limited had sold to one of his solicitors, Douglas McClelland of Platinum Lawyers, on 27 March 2012 for an expressed consideration of $1.5 million. Mr McClelland, who was a principal of his firm, was admitted to proof at the creditors' meeting for a claim of $1,947,017. 10 On 15 May 2013, Judge Driver's associate notified the parties that his Honour proposed to deliver a reserved judgment in the bankruptcy petition on 7 June 2013. 11 A lot happened on 21 May 2013. First, the hearing of the Bank's proceedings against the debtor, 33 Electra, and the second of his companies, C2C Investments Pty Limited, began before Sackar J. Secondly, Davies J in the Supreme Court gave judgment in favour of the plaintiffs in two proceedings that had been commenced the previous month: Shannon v Shannon [2013] NSWSC 608. The debtor's father was the plaintiff in one of those proceedings in which he claimed $12,885,383 and interest. In the second, a company of his father and mother, D & W Shannon Pty Limited (DWS), claimed $8,916,052.74 plus interest. The father's proceedings had been commenced on 16 April 2013, and DWS's on 22 April 2013 and both were, to say the least, unusual. The debtor was most diligent in filing his defences. The defences were verified not by the debtor but by Mr McClelland on 29 April 2013, contrary to the Uniform Civil Procedure Rules in force in New South Wales Courts. Those defences admitted the loans claimed, the debtor's failures to repay but pleaded that they were not repayable because, in the father's case, they were gifts, and, in DWS's case, because the interest rate of 20% was allegedly a penalty. In addition, Mr McClelland, as the debtor's solicitor, signed certificates for those defences under s 347 of the Legal Profession Act 2004 (NSW) that Davies J described in his reasons, were in a form (at [7]): "… so extraordinary it first prompted a telephone call from the solicitor for the Plaintiff to the solicitor for the Defendant, Mr McClelland, where the solicitor for the Plaintiff asked Mr McClelland, 'Did you mean to sign the certificate as it reads or is there a typographical error…?'" 12 The certificates read that Mr McClelland certified under s 347 that there were "reasonable grounds for believing on the basis of provable facts and a reasonably arguable view of the law, that the defence to the claim for damages in these proceedings has no reasonable prospects of success" (his Honour's emphasis). That is, Mr McClelland, on his client's behalf, had verified a defence which Mr McClelland viewed had no prospects of success. 13 Davies J recorded that, in those circumstances, and because the debtor's father was elderly and in ill health, motions had been brought seeking urgent summary judgment for the claims in each statement of claim. He said that the debtor had appeared by his solicitor who offered no opposition to the matters. His Honour entered judgments for the full amounts claimed on the same day having given ex tempore reasons. In consequence, the debtor's indebtedness to his parents increased by about $19 million above what he had sworn was his indebtedness to them on 5 February 2013. There was no explanation before me of any reason for that change. 14 The third thing that happened on 21 May 2013, was the debtor executed the draft personal insolvency agreement as a deed and completed his statement of affairs. The latter included the very recent judgment debts owed to his father and DWS entered by Davies J. 15 On 3 June 2013, after the Bank learnt of the judgments in favour of the debtor's father and DWS in late May 2013, it applied, in the Supreme Court proceedings to set those judgments aside as not having been obtained in good faith. Subsequently, Rothman J in the Supreme Court ordered that the Bank bring separate proceedings to make that challenge, and it promptly did so, filing a statement of claim on 17 July 2013 that explained the bases on which that claim was made 16 The Bank asserted, in effect, that all the alleged debts were statute barred at the time at which the Supreme Court proceedings were commenced by each of the debtor's father and DWS, the loan agreements were all shams and the debtor's parents, on behalf of DWS, had applied on 16 December 2011 to the Australian Securities and Investments Commission for DWS to be deregistered with the father and mother declaring that, as at 16 December 2011, its assets were less than $1000. The Bank's statement of claim also alleged that the first loan agreement on which the father claimed in his proceedings was for a principal sum of $150,000 entered into on 1 July 1995, providing for payments of $3,750 per month for interest at only 10% per annum for two years with the principal repayable by 30 September 2005. The purpose of that loan was said to be for land supplied for the family home at 8 Fleeting Court, Tuncurry. (Curiously, that Bank alleged there was no "Fleeting Court" at Tuncurry. That is one of the properties the Bank alleged that the debtor failed to disclose in his statement of affairs of 21 May 2013.) Clause 6.3 of that loan agreement referred to Goods and Services Tax and to a 1999 Commonwealth statute relating to that tax, despite the fact that that tax only commenced to be payable on 1 July 2000 and was not provided for in any legislation in 1995, being the time of the alleged agreement. Suffice to say that the claim by the Bank to challenge the default judgments is not colourable.

The trustee's report to creditors 17 The trustee prepared and circulated a report to creditors dated 14 June 2013. In it, he stated his conclusions in numerous places throughout the report that he was aware of considerable inconsistencies in relation to information that the debtor had provided. These included discrepancies between the debtors' two statements of affairs. The trustee said that he had serious concerns regarding the sufficiency and reliability of the available information either to allow him to make a recommendation to creditors or for the creditors to be enabled to make a fully informed decision regarding the debtor's affairs and concluded: "On this basis I do not consider that I am currently able to make any recommendation regarding the acceptance or otherwise of the Debtor's draft PIA proposal." 18 The trustee suggested that creditors vote to adjourn the meeting for a period to enable a comprehensive investigation into the debtor's affairs to be completed. But he wrote that as he was required to make a recommendation, he recommended that the creditors resolve that the debtor present a debtor's petition within seven days. He said that the debts recorded as owing to the debtor's father and DWS, the judgments for, and circumstances surrounding, them: "… give rise to concerns regarding the veracity of these claims and further information and analysis is required in order to substantiate their bona fides." 19 The creditors' meeting was held on 26 June 2013. It was attended by the debtor, the trustee, Mr McClelland, a solicitor for the Bank, Justin Bates, and the trustee's assistant, Mr Lu. Mr McClelland held 17 proxies for creditors who all voted in favour of the proposal. Mr Bates tendered his proxy for the Bank and Bankwest, and the trustee held proxies for the remaining five creditors. The trustee admitted the Bankwest proof debt of about $8.5 million at $1 for voting purposes. He referred to no legal advice or other basis upon which he had arrived at that valuation. There is no evidence before me as to how he came to it. Given that by that time, the proceedings before Sackar J had taken over three weeks of hearing time since they commenced on 21 May, it was a most remarkable valuation. 20 During the course of the creditor's meeting, Mr Bates, as the Bank's representative, had asked the debtor a number of questions under his right pursuant to s 195(3). One of them concerned the source of the funds of $200,000 that cl 3(b) of the agreement had him contributing. The debtor advised that it was payable by a third party. When Mr Bates sought to inquire of the debtor about the properties that he had acquired with the loans from his father, the trustee refused to allow him to proceed with those questions. The evidence revealed that the debtor who had been in the business of a builder and developer had acquired and disposed of interests in a large number of real properties over the preceding 20 years. 21 Two motions were considered by the meeting: the first, by Mr Bates, was that it be adjourned for 21 days to allow the trustee time to carry out further investigations into the debtor's financial affairs; and the second, by Mr McClelland, a special resolution in favour of the creditors accepting of the draft personal insolvency agreement. The first notion was defeated, the second carried, with the voting details that I have mentioned.

The draft deed and the final deed 22 The draft personal insolvency agreement put to the meeting had been executed as a deed by the debtor on 21 May 2013. It contained the following relevant covenants: (1) the debtor had property described in his statement of affairs (erroneously said to be dated 20 rather than 21 May 2013) and he was employed full-time as a consultant earning a net salary of approximately $30,000 per annum; (2) the antecedent transactions provisions of the Act should not apply to the debtor in terms of the agreement; (3) the debtor proposed that a total of $50,000 be paid to the trustee within four weeks following his appointment, $25,000 within two weeks and a further $25,000 within four weeks of the appointment. That fund was to be utilised by the trustee as remuneration as approved by the creditors, calculated at his firm's professional rates and for disbursements. (4) clauses 3(b) and (f), provided as follows: "(b) In addition, the Debtor will contribute $200,000 over the course of 12 months, comprised of payment of $100,000 within 6 months after the execution of this Deed following acceptance of creditors, and a further payment of $100,000 within 12 months after the execution of this Deed following acceptance by creditors. Such funds to be available for the purposes of payment of a dividend to the admitted creditors of the debtor. … (f) A major creditor of the Estate, being Mr & Mrs D & W Shannon will agree to waive their rights to participate in any distribution out of the funds referred to at paragraph 3(b) above." 23 The statement in cl 3(f) was, as is apparent, unqualified. However, on 11 December 2013, the trustee wrote to the solicitors for the Bank attaching a copy of a deed of personal insolvency agreement dated 5 July 2013 executed by him and the debtor. He noted that on 9 July 2013, he had notified the creditors that the final form of the agreement had been executed following its acceptance. However, until 11 December 2013, the terms of that deed had not been notified to any creditors. When the deed arrived, it had two material differences from the draft considered at the creditor's meeting. First, the operative date was now 5 July 2013 and this change affected the time from which payment obligations arose under the deed. Secondly, and more importantly, cl 3(f) now had additional provisions to that it read: "f. D & W Shannon Pty Ltd, Mr Dallas Shannon and Mrs [sic] Kerri Shannon, will agree to waive their rights to participate in any distribution out of the funds referred to at paragraph 3(b) above. Such parties will provide written notice to this effect in which this Deed is reliant upon receipt of same." 24 The solicitors for the Bank immediately wrote to the trustee on receipt of that deed enquiring how the last sentence came to be added to cl 3(f) to the draft that the creditors had voted on, what its intention was and whether it was intended to be conditional on receipt of notices from the debtor's father, DWS, or Kerri Shannon. The trustee wrote back promptly on the same day, advising that in his view the alteration to cl 3(f) was: "… considered a minor procedural change, which has the effect of strengthening the mechanics of the proposal for the benefit of creditors." He said that it required the related parties, who were intended to waive their rights to participate in any distribution, to provide written notice that they would do so. He asserted that it had been included because those parties had lodged claims with the trustee at the meeting on 26 June 2013, "and for procedural purposes". The trustee said that the operation of the deed was intended to be conditional on receipt of the required notices and that he had not received any such notices. However, the trustee added that he would not have proposed seeking any notices until such time as a dividend was payable under the deed and that had not occurred. 25 The Bank's solicitors had enquired of the trustee as to the source of the funds of $200,000 to be contributed by the debtor and had issued a notice to the trustee to produce relevant documents in these proceedings. On 11 September 2013, the trustee produced documents showing that he had received an email from the debtor dated 15 June 2013 that named the funder as Far North Queensland Cattle Company Pty Limited, whose director and shareholder was James Davidson. The trustee advised the Bank's solicitors on 21 October 2013 that there was no correspondence between his office and the funder. He said that the personal insolvency agreement did not specify the party responsible for making the contribution. The trustee stated that the debtor was the source of the trustee's information about the funder and that no agreements had been entered into between the trustee and the funder for payment of the contribution. 26 The Bank's searches with ASIC made in October 2013 revealed that the funder had been incorporated on 16 May 2008, had an account's office as its registered place of business in Cairns and that its principal place of business was at Malanda, Queensland, being the address of Mr Davidson, who was its director, secretary, and only shareholder. ASIC had published a notice of proposed deregistration in respect of the funder on 6 August 2013. There was no evidence as to any connection between the debtor and that the funder, and more particularly as to why it would volunteer $200,000 to pay the debtor's creditors or at all. 27 The debtor's counsel tendered an email received at 11.30 am during the course of this morning's hearing from a partner of the trustee to the debtor that confirmed that the trustee had received payments in respect of the agreement to date totalling $50,000.

The adjournment application on 13 December 2013 28 Last Friday, 13 December 2013, I refused the debtor's application for an adjournment of the two day final hearing that, on 31 October 2013, I had fixed to commence today. 29 On 25 September 2013, the registrar ordered that the debtor file and serve any affidavits upon which he sought, in these proceedings to rely by 25 October 2013. The matter came before me on 31 October 2013 and on the debtor's application, I ordered that he file and serve all the evidence on which he proposed to rely on before 14 November 2013. 30 On 14 November 2013, the then solicitors acting for the debtor wrote to the Bank referring to the orders that I had made on 31 October 2013, asserting that they had formed the view that these proceedings should be cross-vested with the other Supreme Court proceedings and that it was inappropriate for me to proceed to determine this application until such time as the Bank's proceedings in the Supreme Court were finally determined. Those solicitors asserted that they had been instructed to approach my associate to seek leave to bring an application to have the hearing of the matter fixed for 16 and 17 December 2013 vacated and, that accordingly, they would not be in a position to file the debtor's evidence on 14 November 2013. No such application was made. 31 The debtor said in an affidavit he swore on 12 December 2013 that the first time he had seen or heard of the orders made on 31 October 2013 was when he looked at them on the Federal Court eSearch service on the Court's website on 29 November 2013. He said he did the search after he had received calls from creditors who had received a letter dated 27 November 2013 from the Bank's solicitors notifying them of today's hearing under rr 9.04 and 10.04 of the Federal Court (Bankruptcy) Rules 2005 (Cth). 32 During the adjournment application the debtor and his former solicitor, Samuel Pitt, who had been present in court on 31 October 2013, gave oral evidence. It emerged from that evidence that Mr Pitt had not told or otherwise timeously informed the debtor of the orders that had been made on 31 October 2013. However, by 22 November 2013 the debtor knew of the two day hearing fixed to begin today and was present for meetings with Mr Pitt in Sydney during the week beginning 25 November 2013 to prepare for his various litigious matters. The debtor gave no satisfactory explanation as to why he did not take any steps either to seek to prepare his evidence late, or seek an adjournment of the hearing promptly. 33 Even after 29 November 2013, when he asserted he was shocked to learn of the hearing date of today still being in place, he did nothing to prepare to be ready and claimed this was because he had changed solicitors and then instructed his new solicitors who went on the record by 5 December 2013. On 9 December 2013 the debtor's new solicitors wrote to the Bank's solicitors seeking agreement to vacate the hearing date. That was unsurprisingly rejected. The new solicitors wrote an email on 10 December 2013 at about 4 pm to my associate and the Bank's solicitors recording their instructions to seek an adjournment and notifying that they were in the stages of finalising an affidavit in support. An interlocutory application and two affidavits by the debtor were made on 12 December 2013 and the interlocutory application for the adjournment was made returnable the next day. 34 When I inquired on 13 December 2013, of the debtor's counsel, what evidence his client would wish to prepare to oppose the Bank's claim, he listed the following: (1) material to answer the assertions in the affidavit of Onno Hornstra made on 28 August 2013 relating to the debtor's failures to disclose that he disposed of several interests in real and personal property in the five years preceding his statement of affairs made on 21 May 2013 to which I have referred above; (2) answers to matters in the affidavits of Mr Bates made on 22 August 2013 and 30 October 2013; (3) the trustee's having informed the debtor that he acted on legal advice in admitting Bankwest's proof of debt at the meeting for $1 and that the debtor may wish to call the trustee to give evidence concerning that matter; (4) explaining inconsistencies between his statement of affairs dated 21 May 2013 and his affidavit sworn on 5 February 2013 verifying his assets and liabilities in the Federal Magistrates Court proceeding; (5) explaining that the Bank or Bankwest had taken six unsuccessful proceedings against him before the one that was taken before Sackar J; and (7) calling evidence from his father who, with DWS, were his major creditors. 35 I considered that the material that the debtor could rely on would be largely documentary and readily accessible to him through Court documents or property searches. The medical evidence that the debtor tendered included a report prepared by Dr Jacinta Guthridge dated 2 December 2013. She was a consultant physician geriatric specialist. Dr Guthridge diagnosed his father with dementia as well as other conditions. She stated that the father was not capable of making informed decisions about the decline in his health, accommodation needs, had a history of cognitive decline and he had global deficits on his mini mental state examination, particularly with recall, orientation as well as attention. She said that he had not managed his finances for the prior two years. 36 Accordingly, I was of opinion that the debtor's father would not have been a competent witness or capable of giving any reliable evidence. The debtor had had since late August 2013 to begin preparation to oppose the Bank's application. After learning of the hearing on 22 November 2013 he had done nothing to prepare while in Sydney the next week. More seriously, even after he said, falsely, that he had only learnt on 29 November 2013, of the orders for preparation of his evidence and the hearing today, he did nothing promptly to seek an adjournment or to prepare for the hearing. 37 The debtor and his lawyers owed duties to the court to co-operate under Pt VB of the Federal Court of Australia Act 1976 (Cth) in achieving the overarching purpose of the civil practice and procedure provisions, namely to facilitate the just resolution of disputes according to law as quickly, inexpensively and efficiently as possible. They owed those duties expressly pursuant to s 37N of the Act. The hearing dates had been fixed six weeks before the adjournment application was brought and therefore those dates were no longer available for other litigants who may have had urgent cases for hearing in the Court. 38 In Sali v SPC Ltd (1993) 116 ALR 625 at 629, Brennan, Deane, and McHugh JJ said: "In determining whether to grant an adjournment, the judge of a busy court is entitled to consider the effect of an adjournment on court resources and the competing claims by litigants in other cases awaiting hearing in the court as well as the interests of the parties. As Deane J pointed out in Squire v Rogers this "may require knowledge of the working of the listing system of the particular court or judge and the importance in the proper working of that system of adherence to dates fixed for hearing". What might be perceived as an injustice to a party when considered only in the context of an action between parties may not be so when considered in a context which includes the claims of other litigants and the public interest in achieving the most efficient use of court resources." (citation omitted) 39 Those considerations have only been reinforced by the enactment of Pt VB of the Federal Court Act, which expressly provides in s 37M(2) that considerations in the overarching purpose include the efficient disposal of the Court's overall workload and the disposal of all proceedings in a timely manner: see too Aon Risk Services Australia Limited v Australia National University (2009) 239 CLR 175 at 213 [97]-[98], 217-218 [113]-[114] per Gummow, Hayne, Crennan, Kiefel and Bell JJ and Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management Marketing Pty Ltd (2013) 303 ALR 199 at 210-213 [51]-[57] where French CJ, Kiefel, Bell, Gageler and Keane JJ said at [51]: "Speed and efficiency, in the sense of minimum delay and expense, are essential to a just resolution of proceedings. The achievement of a just but timely and cost-effective resolution of a dispute has effects not only upon the parties to the dispute but upon the court and other litigants. The decision in Aon Risk was concerned with the Court Procedures Rules 2006 (ACT) as they applied to amendments to pleadings. However, the decision confirmed as correct an approach to interlocutory proceedings which has regard to the wider objects of the administration of justice." 40 I considered that the debtor would be able to provide from Court documents and property searches the substantive material necessary to answer any matters that arose for the purposes of the just resolution of these proceedings. Accordingly, I made directions that he provide any of the evidence upon which he proposed to rely, to the Bank by noon yesterday. 41 In all the circumstances, I was not persuaded that it was in the interests of justice to grant the adjournment. Although the debtor said he was devoted to caring for his father, he had come to Sydney for several days in late November 2013 to deal with his various litigious matters. He had access to his computer, internet and telephone services with which to communicate with his lawyers from no later than 22 November 2013 when he acknowledged that he learnt of the fixture for the hearing today. I did not accept his explanations. For all those reasons I was satisfied that I should refuse the application for an adjournment. 42 In the event the only evidence tendered by the debtor in the substantive proceedings today was the email dated today identifying that the trustee had received the payment of $50,000, to which I have referred. His counsel also cross-examined the two witnesses whose affidavits the Bank had read.

The debtor's submissions 43 The debtor argued that the Bank had an onus to establish that the Court should be satisfied that the agreement should be set aside under ss 222(1) and (5). He argued that in exercising the discretion to do so expressly, or by implication, the Court necessarily had to have regard to the interests of the creditors as a whole that were to be served by the making of any such order. In particular, he contended, the creditors could be assumed to know where their economic interests lay in voting for an agreement to be entered into and the Court would not lightly set the agreement aside in light of those considerations. He also argued that a relevant factor was that the Court must be satisfied, if it exercised the power to set the agreement aside, that by doing so there was a real prospect of improving the return for creditors from that offered by the agreement approved by the creditors. He submitted that mere speculation as to whether the debtor had other assets that may be available but undisclosed or that considerations of the public interest in proper scrutiny of the debtor's affairs were not a substitute, or sufficient, to supplant the considered views of the majority of the creditors. He pointed to the fact that the proposal was intended to ensure that the creditors would receive a return with which the overwhelming majority by value and number were satisfied, albeit that it would be a very small return against very large debts. He said that there were no cases in which the mere fact of the disparity between the amount of the debtor's debts and the sum offered in the composition or agreement was a sufficient ground by itself to set a personal insolvency agreement aside. He also argued that even if the trustee had made an error in rejecting Bankwest's proof of debt, it is unlikely that it would have been admitted at that time for its full value. And so, he contended, there was every reason to think that a majority, sufficient to pass a special resolution, would still have been achieved. Indeed, had the Bank's debt been admitted to proof at the full amount, with all the others that were admitted at the values that the trustee admitted, the resolution would have been defeated as a special resolution only by 1.2%: i.e. 26.2% of the creditors would have been against its passage.

Consideration 44 In Hingston v Westpac Banking Corporation (2012) 200 FCR 493 at 510-511 [90]-[93] Greenwood, McKerracher and Nicholas JJ approved of the principles applicable to s 222(1)(d) identified by the primary judge that they had earlier summarised at 505 [58], namely (omitting citations): "in assessing whether the composition is unreasonable, or not calculated to benefit creditors generally, the Court has regard to the amount of the composition as compared with the debts owing by the debtor; in making that comparison the relativity between the amount of the debts incurred and the proposed composition might suggest that the proposal is so trivial or so disproportionate (as, for all practical purposes, the creditors are receiving nothing or a negligible amount) that the administration of the estate is "better dealt with by way of bankruptcy" with an investigation by the Trustee in bankruptcy exercising relevant powers; the relativity of the amount of the debts owing, to the proposal made, is relevant but not determinative; whether any payments have been made to creditors or to the Trustee of the bankrupt estate is also relevant; and, the nature of the relationship between the debtor and those creditors who voted in favour of the composition is relevant." 45 Their Honours said that a calculus of factors must be taken into account when considering the exercise of the power to set aside a personal insolvency agreement under s 222(1)(d) including (at 511 [91]-[92]): "whether, from the perspective of all creditors substantial further investigation was required of a particular transaction or the affairs of the debtor more generally; whether some particular creditors may have dominated the vote in circumstances where there may be questions about the relationship between the debtor and those creditors; whether the composition proposal is properly regarded as trivial resulting in a negligible distribution to unsecured creditors; the relativity between the positions under an administration in bankruptcy and a distribution under the composition proposal; and the other matters already mentioned and taken into account by the primary judge. Thus, the vote of the creditors is not paramount in an absolute sense. Great respect will be given to the views of practical people of business who have come together to make a decision on the composition proposal in a properly informed way. However, a discretion is conferred on the Court to set aside the composition (and the annulment of the bankruptcy) in the circumstances, relevantly, for present purposes, of s 222(1)(d)." (italic emphasis in original, bold emphasis added) 46 In my opinion, the trustee erred in failing properly to address the evaluation of the Bank's debt. In Re Dingle; Westpac Bank Corporation v Worrell (1993) 47 FCR 478 and 489G-490B Wilcox, Ryan and Cooper JJ found that the trustee, Mr Worrell, had a duty to make a judgment about the prospects of success of a creditor, in a complex proceeding, in the face of conflicting legal opinions, when adjudicating on a creditor's proof of debt. They said: "Mr Worrell was placed in a most difficult position, being required to assess the prospects of success of a complex proceeding in the face of conflicting legal opinions. Nonetheless, we have to agree with Drummond J that it was his duty to make a judgment about those prospects. It should have been obvious to him that Westpac would seek to vote in opposition to the composition and that its vote (if allowed) would probably be critical to the result. In that situation, we think that, before coming to the meeting, Mr Worrell should have obtained a considered opinion from a suitably qualified lawyer briefed with all available information about the case, including the foreshadowed defences." 47 In this matter, there is no evidence here that the trustee did any such thing. I am of opinion that his valuation at $1, for voting purposes, of the Bank's debt claimed in the proceedings that were already substantively part heard before Sackar J demonstrated that the trustee gave no, or no real, consideration to the valuation of the debt in accordance his duty. The trustee made his valuation of a claim that was based on guarantees given by the debtor, as director, of his two companies to support their financing by the Bank to a sum of over $8.5 million. There is no evidence that the trustee sought legal advice, and if he did, there is no evidence as to how he could have come to the view that the Bank's claimed debt was effectively worthless for voting purposes. Nothing in the evidence before me suggested, and the debtor did not identify any justification, for such a value. His Honour's subsequent decision to give judgment in favour of the Bank in the full amount it claimed supports the inference that there was no reasonable basis for a valuation at $1. 48 For those reasons, I am of opinion that the Bank's claim to appeal against the trustee's decision under s 178 of the Act should be allowed and that the trustee should have admitted the debt, having regard to the evidence now before me, at full value. Had he done so, that would have affected the result of voting on the resolution. Certainly, at the time of the meeting, the trustee must have been able to form a view that the debt was worth, for voting purposes, substantively more than the nominal sum of $1. Were it to be admitted now on the basis of Sackar J's findings, as I find it should be, the resolution to approve the agreement would not have been passed as a special resolution. 49 The Bank also complained that the trustee should not have admitted for full value the two judgment debts of the debtor's father and DWS that he had expressed concern about in his report to creditors. A trustee in bankruptcy, and, likewise, a trustee for the purposes of a personal insolvency agreement, is not necessarily bound by Court judgments and, and in appropriate circumstances, can go behind them: see Wren v Mahony (1972) 126 CLR 212. Nonetheless, at the time of the creditors meeting the trustee's acceptance of those two judgment debts at face value is understandable. The Bank did not appeal against the trustee's admission of those debts at full value. 50 However, the debts claimed by the debtor's father and DWS amounted to just over $21.8 million, being half of the total debts submitted to proof. Those debts were also in the order of 80% of the about $28.1 million of debts admitted to proof, and of the about $26.7 million of the debts voting in favour of the agreement. That raised a real question as to whether the agreement should stand in light of the Bank's evidence of how those debts came to be claimed. 51 Moreover, the draft agreement, as put to the creditors, had been executed by the debtor as a deed on 21 May 2013. It provided that the debtor was to contribute only $200,000 to payment of all his debts. At the meeting, only because of Mr Bates' questioning, the debtor revealed that a third party, which he did not identify to the meeting (although he had earlier identified it to the trustee) would provide that money. The trustee made no inquiries and received no information from the third party as to whether that assertion by the debtor was true, notwithstanding his duty to make appropriate inquiries and investigations in connection with the debtor's property and examinable affairs and to exercise his powers and perform his functions in a commercially sound way (s 190A(1)(f) and (h)). 52 There is no intelligible reason in the evidence why a complete stranger would pay $200,000 to support anyone's personal insolvency agreement, let alone a debtor who had managed to run up alleged debts of about $46 million. The circumstances that the debtor asserted that the Far North Queensland Company would provide that money, required the trustee, at least, to make some attempt to find out whether that company was actually intending, or committed, to paying the $200,000 and what the circumstances were as to why it was doing so. There was no evidence about those matters. 53 Another matter of very great concern is the massive discrepancy between the sworn statement of affairs which the debtor made in the Federal Magistrates Court on 5 February 2013 and his statement of affairs on 21 May 2013. The debtor has given no explanation for that massive discrepancy between the two or the huge variation in the amount said to be owed as inter family-debts that rose from something like $3.4 million to over $22 million in the space of three and a half months, all of that happening at a time when Judge Driver's decision on the creditors petition was reserved and Sackar J's decision on the substantive proceedings before him were imminent. 54 Moreover, the addition to cl 3(f) of the debtor's sister and the final sentence of the personal insolvency agreement after the creditors meeting was a substantive change that had not been specified by the resolution under s 204(2). It added a conditional element to the agreement so that it was able to be frustrated by a lack of consent from the debtor's family members. That was a material matter that was not before the creditors or upon which they were able to make an informed vote. Rather, the impression conveyed to the meeting by the draft form of the agreement circulated to the creditors and executed by the debtor suggested that his parents (and DWS, as their company, although it was not named) were happy to waive their rights to prove, thereby increasing the dividend that would be available to the creditors. 55 The terms of the agreement in all the circumstances could not be seen to be reasonable. I am of opinion that the massive discrepancy between a payment of $200,000 to discharge debts of about $20 million dollars, leaving aside the inter-family debts, if they were waived, is not in the interests of creditors in all the circumstances. Moreover, the fact that the debtor failed to disclose in his statement of affairs dated 21 May 2013 assets of significant value that he had disposed of in the previous five years is also a further matter for concern. The sale of the debtor's and his wife's house at Tuncurry in 2009 could have been disclosed, but he gave no explanation as to why he did not do so despite having revealed, in his statement of affairs, another house sale by him and his wife in January 2009 for $2,000,000. His lack of explanation for the omissions of that sale, or transfer, of his shares in Unhappy Customers Litigation Pty Ltd to his daughter is also a matter of some concern. The debtor did explain to the trustee, as recorded in the report to the creditors, that the company had not traded and the shares had no value. But that hardly explained why the transfer occurred. Next, the debtor's transfer of the cause of action to Mr McClelland for $1.5 million was also omitted from his statement of affairs. The relationship of that to Mr McClelland's claim to be a creditor for nearly $2 million was also not explained, nor was whether the debtor had received the $1.5 million, and, if so, there was no explanation as to what happened to it. 56 The debtor has had a very large history in engaging in many transactions over many years with many persons. He has incurred very substantial debts. In my opinion, it is manifestly in the public interest that a trustee in bankruptcy be able to exercise the full powers of a trustee to examine the affairs of this debtor to ensure that all his assets and his liabilities have been properly and fully disclosed. While there will be some injustice done to the creditors, the almost derisory amount of money payable in this proposed composition if, and the question is very much conditional, all of the debtor's father, his sister and DWS choose to waive their rights, supports the conclusion that this agreement is unreasonable. 57 The trustee did not choose to disclose promptly or frankly to the creditors that the new conditions had been inserted into cl 3(f) after they had voted. The effective right of veto of the agreement at a later time and when they choose that each of the debtor's father, sister and DWS obtained is unreasonable. The right of veto was not created at the meeting in respect of the debtor's sister and is not supported by s 204(2). While the creditors are likely to have understood that the reference to Mr and Mrs D & W Shannon in the draft agreement included DWS, the debtor's sister was not referred to at all in this context. The veto's existence leaves completely uncertain whether the creditors will receive any return. The trustee made no investigations at all as to whether the promised funding would be forthcoming. That had effectively left the debtor and his family in control of vetoing the performance of the agreement in circumstances where, in a very short period of time, he had given radically different explanations of his supposed financial position. These are matters that are not calculated to benefit the creditors generally or at all. There is no assurance of any return to creditors under the 5 July 2013 agreement. 58 The nature of the relationship between the debtor and those creditors who voted in favour of the agreement is also relevant. Here, the trustee has been paid the $50,000 promised to him under the agreement. However, no payment has been made for the benefit of the creditors. The majority in value of the creditors who voted on the proposal are related parties to the debtor controlling about 80% of the vote. There are circumstances suggesting that those debts are not ones that arose in the ordinary course or would necessarily be found by a trustee to be real or capable of being admitted to proof: Hingston 200 FCR at 511 [91]-[92].

Conclusion 59 For all the above reasons, I am of opinion that it is manifestly in the public interest for this agreement to be set aside. I am satisfied that its terms are unreasonable and are not calculated to benefit creditors generally. It is not in the interests of creditors to allow the agreement to stand when the debtor had omitted material matters from his statement of affairs particulars as to the sale of his and his wife's property at Tuncurry, the transfer of the shares to his daughter, and the disposal of a cause of action for $1.5 million to Mr McClelland within the preceding five years. It is crucial that this debtor's examinable affairs be properly investigated by an independent trustee in bankruptcy. Accordingly, I will order that the deed dated 5 July 2013 between the second and first respondents be set aside. I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.