James Legal Pty Ltd v Milanos as trustee for the property of Alfred Michael Vincent Attard

Federal Court of Australia|2019-12-18|Before: Bromwich J

The proceeding be listed for a case management hearing at 9.00 am on 30 January 2020, or such other date as may be fixed.
The parties confer and by 4.00 pm on 28 January 2020 submit to the chambers of Justice Bromwich agreed or competing draft orders in accordance with the reasons for judgment published on 18 December 2019, and for the further progress of the proceeding. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 This is an appeal from orders made by a judge of the Federal Circuit Court of Australia. On 28 September 2018, his Honour dismissed an application by the appellant, James Legal Pty Ltd, as a creditor, to set aside, or alternatively terminate, a 5 October 2015 personal insolvency agreement (PIA). The PIA was made between the first respondent, Mr Nicholas Milanos, in his capacity as trustee of the property of Alfred Michael Vincent Attard, and the second respondent, the debtor, Mr Alfred Michael Vincent Attard. The hearing of the matter took place before the primary judge over three separate days, on 1 July 2016, 27 October 2016 and 11 December 2017. 2 The application before the primary judge under the Bankruptcy Act 1966 (Cth) (Act) was made to set aside the PIA under s 222, or alternatively to terminate the PIA under s 222C. James Legal also sought the making of a sequestration order against the estate of Mr Attard, and costs. 3 Mr Milanos, who is a partner in an insolvency practice, filed a submitting appearance (save as to costs) in the Federal Circuit Court and in this Court in his capacity as controlling trustee. He was, however, legally represented at the final hearing day before the primary judge, on 11 December 2017, and also at the hearing of this appeal. Mr Milanos' lawyer did not participate in the proceeding at trial or appeal, except in relation to an application by James Legal to amend its grounds in the Federal Circuit Court. 4 Personal insolvency agreements are governed by Part X of the Act. Under s 188, a debtor who "desires that his or her affairs be dealt with under [Part X] without his or her estate being sequestrated", and meets certain residential or other criteria that are not in issue in relation to Mr Attard, may sign an authority authorising a registered trustee, solicitor or the Official Trustee in Bankruptcy, to call a meeting of his or her creditors and to take control of his or her property. Section 188A contains the minimum requirements for a PIA. None of the requirements of ss 188 or 188A are in issue except as detailed below. 5 The relevant portions of s 222 and s 222C, as at 5 October 2015, are as follows: 222 Court may set aside personal insolvency agreement Setting aside on grounds of unreasonableness etc. (1) If a personal insolvency agreement is in force, the Court may, on application by: (a) the Inspector-General; or (b) the trustee; or (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. Setting aside on grounds of non-compliance with this Part etc. (2) If a personal insolvency agreement is in force, the Court may, on application by: (a) the Inspector-General; or (b) the trustee; or (c) a creditor; or (d) the debtor; make an order setting the agreement aside if the Court is satisfied that: (e) the agreement was not entered into in accordance with this Part; or (f) the agreement does not comply with the requirements of this Part. (3) The Court must not make an order setting aside a personal insolvency agreement on the ground that it does not comply with the requirements of this Part if the agreement complies substantially with those requirements. (4) The Court must not make an order under subsection (2) unless the application for the order is made before all the obligations that the personal insolvency agreement created have been discharged. Setting aside on grounds of false or misleading information etc. (5) If a personal insolvency agreement is in force, the Court may, on application by: (a) the Inspector-General; or (b) the trustee; or (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. (7) The Court must not make an order under subsection (5) unless the application for the order is made before all the obligations that the personal insolvency agreement created have been discharged. … 222C Court may terminate personal insolvency agreement (1) If a personal insolvency agreement is in force, the Court may, on application by: (a) the trustee; or (b) a creditor; or (c) the debtor; or (d) if the debtor has died-the person administering the estate of the debtor; make an order terminating the agreement if the Court it satisfied: (e) that: (i) the debtor; or (ii) 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 term of the agreement; or (f) that the agreement cannot be proceeded with without injustice or undue delay to: (i) the creditors; or (ii) the debtor; or (iii) if the debtor has died-the estate of the debtor; or (g) that, for any other reason, the agreement ought to be terminated. (2) The Court must not make an order terminating a personal insolvency agreement on the ground specified in paragraph (1)(e) or (g) unless it is satisfied that it would be in the interests of the creditors to do so. 6 The grounds for James Legal's application to set aside or terminate the PIA were detailed in a statement setting out the grounds for relief (Grounds Statement, referred to by the primary judge as SSOGR) in two broad categories of relief provided for by the Act: (1) under s 222(1) and s 222C(1); and (2) under ss 222(2), 222(5) and 222C(1). For each category, the relief sought under s 222C was in the alternative to relief under s 222. The primary objective was to have the PIA set aside and sequestration instead take place. 7 For completeness, it should be noted that on the second hearing day before the primary judge, 27 October 2016, an application for leave to file an amended Grounds Statement was heard, with leave being refused by orders made and a judgment delivered on 12 December 2016: James Legal Pty Ltd v Milanos [2016] FCCA 3202. The third hearing day did not take place until a year after that, on 11 December 2017. All of the amendments proposed were to add additional grounds, without deleting any existing grounds. That was a strong prima facie basis for concluding that all of the existing grounds remained on foot, but, as it turns out, any question of grounds not being addressed did not need to be finally determined.

The making of Mr Attard's PIA 8 On 14 July 2015, Mr Attard appointed Mr Milanos as his "controlling trustee" under Part X of the Act. On 31 July 2015, Mr Milanos, in that trustee capacity, advised Mr Attard's creditors of his appointment, and put them on notice of his intention to call a meeting to consider whether or not to accept a PIA, which was proposed to deal with Mr Attard's debts. On 5 August 2015, Mr Milanos prepared a report to creditors. 9 The creditors meeting took place on 18 August 2015. The creditors voted, by majority, for the PIA. It is common ground that the voting took place as follows: In favour of the Personal Insolvency Agreement Jetz Nominees Pty Ltd as trustee for the Attard Family Trust $2,989,967.50 Jetz Homes & Developments Pty Ltd $2,104,559.14 Alexandra Attard (Mr Attard's wife) $499,000.00 Jessica Investments Pty Limited $250,000.00 Lazarus Legal Group Pty Ltd $30,388.93 Mr Biagio Abignano $3,750.00 Advocate Financial Services $2,750.00 Mr John Sukari $2,250.00 Total in value $5,882,665.57 (80.89% in value) Against the Personal Insolvency Agreement James Legal $1,085,961.83 Australian Taxation Office $153,092.10 American Express $64,905.33 National Australia Bank $38,640.09 Westpac Bank $37,514.57 Brunskill McClenahan (town planners) $9,349.76 Total $1,389,463.68 (19.11% in value)

10 That is, six creditors in attendance at the creditor's meeting who were at arms-length from Mr Attard all voted against the PIA. Most, if not all, of those voting in favour of the PIA were not at arms-length. That alone warranted close scrutiny of the proposal to approve the PIA. 11 The key and controversial terms of the PIA were that: (3) all of those who voted in favour of the PIA were associated with Mr Attard and were not to receive anything; and (4) the sum of $50,000 would be available by way of an external contribution, the report to creditors noting that 3.1 cents in the dollar was the "potential dividend to non-priority creditors", referred to in the primary judge's reasons at [44]. This meant that Mr Attard would not contribute any assets or any income towards his debts, and there was no possibility of any investigation into any undisclosed assets, such as might be attributed to assets held in the name of his wife or of companies with which he was associated.

The grounds before the primary judge 12 The Grounds Statement, which his Honour aptly (at [33]) described as a helpful and concise summary of James Legal's argument as they related to each provision relied upon, and based on the authorities, was as follows: Grounds under sub-sections 222(1) and 222C(1) Bankruptcy Act 1. The benefits offered to creditors under the personal insolvency agreement made by the second respondent ("the debtor") are negligible and the discrepancy between those benefits and the total indebtedness of the debtor is substantial. 2. The personal insolvency agreement provides that none of the assets of the debtor will be available to pay his creditors' claims. 3. The personal insolvency agreement provides that none of the income of the debtor will be available to pay his creditors' claims. 4. The personal insolvency agreement gives rise to no right to attack antecedent transactions under sections 120 to 124 Bankruptcy Act. 5. The only financial benefits provided to creditors under the personal insolvency agreement emanate from the negligible financial contribution provided by Jetz Homes and Developments Pty Limited ("Jetz Homes & Developments"), being a company controlled by the debtor, his wife and his son, and it not being shown why Jetz Homes and Developments could not or should not pay a far larger sum towards satisfaction of the debtor's external liabilities. 6. The commercial and financial dealings of the debtor (described in the affidavit of P R James sworn 14 December 2015), whereby he shielded his assets from bankruptcy, by placing his assets into the name of his wife and into companies controlled by himself, his wife and his son, warrants further examination through the compulsory procedures available in a bankruptcy. Such procedures may indicate the availability of causes of action under sections 120 to 124 Bankruptcy Act. 7. Even if causes of action under sections 120 to 124 Bankruptcy Act do not exist, the actions of the debtor in shielding his assets from his creditors reflect a lack of commercial morality and warrant the stigma of bankruptcy. 8. Six creditors, whose debts totalled $1,389,463, all of whom were independent of the debtor, voted against the personal insolvency agreement, while eight creditors ("the non-independent creditors"), none of whom was independent of the debtor (for the reasons given below), whose alleged debts totalled $5,882,665.57 (which represented 80.89% of the total indebtedness of the votes cast), voted against the personal insolvency agreement. The outcome of the vote, in terms of achieving the statutory majorities required, was dictated by the votes of the non-independent creditors, whose interests coincided with those of the debtor in his avoiding bankruptcy. The non-independent creditors are as follows: (a) Jetz Nominees Pty Limited ("Jetz Nominees"), Jetz Homes & Developments and Alexandra Attard, all of whom are shown as related entities of the debtor in his statement of affairs and in the first respondent's report to creditors; (b) Advocate Financial Group Pty Ltd is not independent of the debtor, as it is the provider of financial advice to the debtor and the provider of services including the provision of registered offices to various of the companies associated with the debtor described in paragraph 15 of the affidavit of P R James sworn 14 December 2015 (c) Lazarus Legal Group Pty Ltd, which itself (or a predecessor firm) has provided legal services to the debtor or to companies associated with him, since 2003, as shown in the annexures to the proofs of debt submitted by Jetz Nominees and Jetz Homes & Developments; (d) Biagio Abignano and John Sukari who may be inferred to be personal associates of the debtor, from the fact that their proofs of debt are unsupported by any tax invoices or other conventional business documentation; (e) Jessica Investments Pty Limited ("Jessica Investments") which was shown as a related entity of the debtor in the proof of debt lodged by Jessica Investments but not shown as such in the first respondent's report to creditors. Jessica Investments was in fact a related entity of the debtor within the definition of section 5 Bankruptcy Act: (i) in that Worrigee Developments Pty Limited ("Worrigee") fell within part (b) of the definition, since Zachary Attard (the son of the debtor) was a director of Worrigee; and (ii) Jessica Investments was related to Worrigee and fell within part (c) of the definition, in that: a. Worrigee was a subsidiary of Monarch Investments Pty Ltd ("Monarch"), in that 50% of the shares in Worrigee were owned by Rosefield Investments Pty Ltd ("Rosefield"), which was a subsidiary of Monarch, through Monarch's ownership of 100% of the ordinary shares in Rosefield; and b. Monarch was the holding company of Jessica Investments, through Monarch's ownership of 98% of the ordinary shares in Jessica Investments. 9. The first respondent's report to creditors: (a) did not ensure that all facts material to the debtor's affairs were brought to the attention of creditors, in particular the debtor's dealings with his assets described in the affidavit of P R James sworn 14 December 2015; (b) set out no reasonable or sufficient basis for the first respondent's stated belief that creditors should accept the proposal for the personal insolvency agreement; (c) misrepresented the circumstances of the debtor's insolvency, which in fact derived from the debtor's dealings with his assets described in the affidavit of P R James sworn 14 December 2015 and the debtor's dealings with Jetz Nominees and Jetz Homes & Developments, the subject of their proofs of debt; (d) failed to apprise creditors of the deficiencies in the proof of the debtor's alleged liabilities to Jetz Nominees, Jetz Homes & Developments and the other non-independent creditors, which deficiencies are described below; (e) was misleading in referring to a lack of prior dealings between the first respondent and the debtor and omitting to disclose that the first respondent had acted previously as the administrator of companies associated with the debtor, namely Civil Management Group Pty Ltd (ACN 083 714 318) and Civil Management Group No 1 Pty Limited (ACN 192 280 204); (f) was misleading in indicating that documents provided to the first respondent by the National Australia Bank showed that "there is no equity in the residence of the debtor" (being a property at 102 Grosvenor Street, North Wahroonga), when those documents did not demonstrate that conclusion. Grounds under sub-sections 222(2) and (5) and sub-section 222C(1) Bankruptcy Act 10. The following alleged creditors were not shown to have been creditors of the debtor in the amounts for which they were permitted to vote, or for any amount, and they should not have been permitted to vote: (a) (i) the alleged debt of Jetz Homes & Developments was not supported by a proof of debt which declared that this amount was owing, given that the signature of the representative of Jetz Homes & Developments on the proof of debt was qualified by the statement: "I have been a director since 14/7/2015. I have relied on information provided to me"; (ii) the alleged debt was not supported by any contemporaneous business records or any records brought into existence prior to the debtor's appointment of the first respondent as his trustee; (iii) the alleged debt, purportedly having arisen for "reimbursement of non-company legal expenditure", did not purport to have involved legal expenditure for which the debtor was liable; (iv) was not supported by any costs agreement or other documentation which showed the nature of the legal expenditure or how the debtor was liable for it; (v) was not supported by any tax invoices or other documentation which showed that the debtor (or anyone) had been called on to pay the expenditures which were purportedly paid by Jetz Homes & Developments or that the alleged payments had in fact been made by Jetz Homes & Developments; (vi) was not supported by any documentation which indicated what outcome had been obtained through the legal expenditure or that any positive financial outcome had been accounted for and was not supported by any documentation which purported to show (as the proof of debt claimed) that the debtor was separately liable for that legal expenditure rather than jointly liable (or jointly and severally liable) with any other person. (b) (i) the alleged debt of Jetz Nominees was not supported by a proof of debt which declared that this amount was owing, given that the signature of the representative of Jetz Nominees on the proof of debt was qualified by the statement: "I have been a director since 14/7/2015. I have relied on information provided to me"; (ii) the alleged debt was not supported by any contemporaneous business records or any records brought into existence prior to the debtor's appointment of the first respondent as his trustee; (iii) the alleged debt, purportedly having arisen for "reimbursement of non-company legal expenditure", did not purport to have involved legal expenditure for which the debtor was liable; (iv) was not supported by any costs agreement or other documentation which showed the nature of the legal expenditure or how the debtor was liable for it; (v) was not supported by any tax invoices or other documentation which showed that the debtor (or anyone) had been called on to pay the expenditures which were purportedly paid by Jetz Nominees or that the alleged payments had in fact been made by Jetz Nominees; (vi) was not supported by any documentation which indicated what outcome had been obtained through the legal expenditure or that any positive financial outcome had been accounted for and was not supported by any documentation which purported to show (as the proof of debt claimed) that the debtor was separately liable for that legal expenditure rather than jointly liable (or jointly and severally liable) with any other person; (c) the alleged debt of Alexandra Attard was unsupported by documentation which indicated that the funds purportedly provided by her in favour of Jetz Luxury Homes Pty Ltd and Elzac Properties Pty Ltd gave rise to debts in her favour due from the debtor or that the amount claimed in her proof of debt constituted a net balance due in her favour from the totality of the financial dealings between herself and the debtor in the course of their marriage; (d) the alleged debt of Lazarus Legal Group Pty Ltd was unsupported by copy tax invoices or any other financial documentation or by any costs agreement or other evidence that a retainer for the provision of legal services to the debtor by Lazarus Legal Group Pty Ltd ever existed; (e) the alleged debt of Advocate Financial Group Pty Ltd was not supported by a valid tax invoice, in that the tax invoice attached to the proof of debt incorporated an ABN which was not the ABN of Advocate Financial Group Pty Ltd; (f) the alleged debts of Biagio Abignano and John Sukari were unsupported by tax invoices or by any documents whatever; (g) the alleged debt of Jessica Investments was unsupported by any evidence of payment of the sum of $410,000 purportedly paid as consideration by Jessica Investments for the assignment to it of the purported debt due in favour of Fleming Family Super Fund Pty Ltd ("Fleming Family Super") or that a Deed of Assignment in favour of Jessica Investments was ever executed by Fleming Family Super or any evidence that a liability (actual or contingent) by the debtor in favour of Fleming Family Super ever existed. 11. The first respondent's report to creditors failed to disclose that Jessica Investments was a related entity of the debtor (which it was, for the reasons set out in paragraph 8(e) above) or that there was any relationship between the debtor and Jessica Investments. 13 The primary judge characterised the above grounds going to the following: (1) whether the PIA should be set aside because its terms were: (a) "unreasonable or are not calculated to benefit the creditors generally": s 222(1)(d); or (b) "for any other reason, the agreement ought to be set aside": s 222(1)(e); and in the alternative, (2) whether the PIA should be terminated because: (a) "the agreement could not be proceeded with without injustice or undue delay to the creditors": s 222C(1)(f); or (b) "for any other reason the agreement ought to be terminated": s 222C(1)(g). 14 The grounds were supplemented by written submissions by James Legal. The primary judge reproduced the following extract from those submissions as to the factors asserted to bear upon the discretion under s 222 and s 222C (at [32], footnoted authority omitted): [1] that the amount available for distribution is trivial or negligible when compared to the debtor's total debts; [2] where the debtor has incurred debts of such huge proportions relative to the debtor's disclosed assets that it is in the public interest that the debtor's affairs be dealt with in bankruptcy, rather than under the more bland provisions of Part X of the Act; [3] the closeness of the vote of creditors and particularly so where the result may have been influenced by creditors who were not at arms-length from the debtor or whose interests coincided with the debtor's interests in avoiding bankruptcy rather than the interests of creditors generally; [4] whether creditors who had voted in favour of a composition had indicated that they would not participate in any distribution of assets and, to the extent that it is known, the reasons for their non-participation; [5] whether the trustee had recommended the acceptance or rejection of the proposed insolvency agreement and the factual basis for that recommendation, including whether there was any reasonable basis for a conclusion that the controlling trustee may not have acted with diligence or impartiality; [6] where serious issues are raised by dissipation of assets, the validity or enforceability of 'loans' from associated parties and, in particular, whether any 'friendly' debts were intended to create Legal relations; [7] where the debtor's affairs call for further investigation and insufficient information was available to creditors for them to have made an informed decision that a more advantageous outcome may have been achieved through the debtor's bankruptcy; [8] the extent to which the personal insolvency agreement has already been implemented.

The primary judge's reasons and conclusions 15 The primary judge was of the view, correctly, that the authorities made it clear that there is potentially a large number of factors which may bear on the exercise of the discretion to set aside or terminate a PIA. His Honour considered it helpful to consider the factors identified by James Legal, and therefore to begin with that list, emphasising that it was not a checklist. Nor could it be, as the primary document containing the content of the application was the Grounds Statement. 16 In relation to the question raised by s 222(1)(d) as to whether the terms of the PIA is "not calculated to benefit creditors generally", the primary judge said that the discretion would not be exercised properly by a mathematical comparison between the debts and the amount offered under the PIA to the creditors, citing Moran v Robertson [2012] FCA 371; [2012] ALMD 4139; 6 BFRA 618; 10 AB(NS) 84 at [16]-[24] and New Age Constructions (NSW) Pty Ltd v Etlis: In the matter of Etlis [2013] FCA 884; [2014] ALMD 3197; 11 ABC(NS) 542 at [56]-[58]. As to the submission that the amount offered was negligible or trivial, his Honour accepted James Legal's contention that it was "paltry" and therefore was a factor weighing in favour of finding that this part of the PIA was unreasonable and not in the interest of creditors. 17 On the topic of the closeness of the vote, the primary judge observed that it was not close when regard was had to the proportion of the debts voting in favour (over 80%), but was close by the numbers of creditors, being eight in favour and six against. However, his Honour understood the closeness of the vote argument particularly arose when the result was influenced by non-arm's length creditors, citing Osborne v Gangemi [2011] FCA 1252; [2014] ALMD 2732; 9 ABC(NS) 257. His Honour observed that, in that sense, a distinction may be drawn between the coincidence of the interests of those who voted in favour of Mr Attard avoiding bankruptcy, rather than the interests of creditors generally. 18 The primary judge made the following findings about the creditors who voted in favour of the PIA: (1) His Honour found that Mr Attard was unable to satisfactorily argue that he had a debtor/creditor relationship with any of the first three in the list at [9] above, being Jetz Nominees Pty Ltd, Jetz Homes & Developments Pty Ltd and Ms Attard (accounting for $5,593,526.64 of the $5,882,665.57, or all but $289,138.93 of the votes in favour by value). His Honour found that Mr Attard's statement of affairs and the report to the creditors were sufficient to show that these were entities related to Mr Attard. It should be noted that his Honour apparently did not appreciate that Jetz Nominees was the trustee for the Attard Family Trust, because he made a separate finding that no submissions had been made about that family trust, instead observing that the trust was recorded as a related entity in Mr Attard's statement of affairs. (2) His Honour accepted that Jessica Investments Pty Limited was a related entity and that there was a discrepancy between the actual amount of debt relating to that company. (3) His Honour accepted that Advocate Financial Services was not an independent creditor as it was a provider of financial advice to Mr Attard. (4) His Honour noted that it was submitted that Lazarus Legal Group Pty Ltd, Mr Abignano and Mr Sukari were not at arm's length, but did not make a separate finding in that regard. (The level of their asserted debts was low enough not to make any material difference.) 19 The primary judge made two findings on the topic of related entities (at [58]-[59]): Two things relevantly emerge from the evidence. One, in relation to those entities with a "familial" relationship, no satisfactory attempt was made by Mr Attard to counter, either by way of evidence or submission, that these entities were at arm's length from his own interests. Two, and also in relation to the other creditors who voted in favour of the PIA, I agree with James Legal that the information and material placed before Mr Milanos at the relevant time was inadequate, and in some cases deficient, in revealing that a debtor/creditor relationship truly existed. For example, the lack of explanation, let alone appropriate detail, in relation to the situation of Mr Abignano and Mr Sukari. 20 Curiously, having made these rather damning findings, as well as the findings summarised above, the primary judge did not appear to return to them, nor rely upon them, in relation to the conclusions ultimately reached as to the fate of the application. His Honour did not appear to take this factor further into account. As will be seen, quite to the contrary, his Honour later concluded, without explanation, that they all remained creditors. Yet on any view, this went to the entitlement of any of the asserted creditors who voted in favour of the PIA to vote as creditors at all, with the overwhelming impact on the PIA vote outcome arising from the three asserted creditors - Jetz Nominees, Jetz Homes & Developments and Ms Attard - whom his Honour considered Mr Attard failed to establish had a debtor/creditor relationship with him. 21 Instead, the primary judge next turned to Mr Attard's arguments as to the question of whether, and if so to what extent, the composition on offer would likely be improved upon should bankruptcy be insisted upon by the creditors, citing Osborne v Gangemi at [44], and to the opposing arguments and authorities cited by James Legal. The competing characterisations of the prospects of a better outcome via bankruptcy came down to the "real possibility" asserted by James Legal against the "mere speculative possibility" asserted by Mr Attard. The authorities quoted and cited by his Honour in support of the competing arguments on this topic were as follows: (1) Augustyn v Putnin (1988) 83 ALR 514 at [23]: "it is sufficient that there be a real possibility of a financial benefit". (2) Moran v Robertson at [19]: When considering the terms of the former s 222(5) and the phrase 'in the interests of the creditors', in Re Tripodi; Ex parte Col Johnson Pty Limited (unreported, 22 January 1987) Burchett J observed: "… I think a broad view should be taken, and in a proper case it may be held that it is in the interests of creditors that there should be the full opportunity for inquiry which bankruptcy may entail, even though there is no assurance that inquiry will in fact uncover any further assets. But, as has been said, a mere speculative possibility is not in itself enough - the circumstances must raise an inference entitling the Court to conclude that the order would be in the interests of the creditors." 22 The primary judge found that James Legal had been unable to point to any real possibility of a better dividend for creditors in the event of bankruptcy. That was because his Honour, after considering in some detail the evidence regarding a number of real estate transactions between Mr Attard and his wife, and the competing submissions about them, found that Mr Attard had provided a satisfactory explanation for them. On appeal, James Legal was able to identify different conclusions that his Honour could have reached, despite failing to cross-examine Mr Attard about those transactions, but was unable to identify any legal error in that conclusion. 23 The primary judge then considered how setting aside the PIA to enable an investigation to take place could realistically assist James Legal's argument. His Honour reviewed the evidence, especially Mr Milanos' report to the creditors and the limited investigation that was carried out by him, including property valuations, that were able to be conducted without the benefit of powers under the Act that arise following sequestration. His Honour characterised the report as being important because it was extensive, finding that no substantial errors or misrepresentations had been identified. His Honour therefore found that the creditors would have voted with full knowledge of James Legal's concerns regarding the properties. 24 The primary judge then turned to the issue of the interests of "creditors generally", and considered a dispute between the parties as to what would happen if there was a vote about the same PIA now as some kind of proxy to assist resolving what those interests might be at that time, remembering that the question posed by s 222(1) is directed to the terms of the existing PIA. His Honour having considered arguments both ways noted that, as a general proposition, a paramount consideration, if not the paramount consideration, was the wishes of the creditors who could be said to be acting as "disinterested judges in their own commercial well-being" (an unsourced quote). His Honour noted James Legal's submission that those who voted in favour of the PIA were not disinterested, whereas those who voted against it were disinterested. His Honour then said that at this point, the balance of the argument had shifted in favour of Mr Attard, because other than for two of the creditors apart from James Legal, all the others had benefited from other arrangements. His Honour reasoned that while it does not automatically follow that the position of those creditors could be known, an inference could be drawn that they would now have to seriously consider whether the accommodation they had reached since the PIA was entered into would be jeopardised if the PIA were set aside or terminated and the matter proceeded under the provisions of the Act available after sequestration. While the position of James Legal had worsened (I infer his Honour is referring to interest accrued on the debt), the relevant question was the interests of creditors generally. His Honour then concluded his reasons as follows (at [131]-[133], emphasis added): But as set out above, the relevant question is not what is in the interests of one creditor, but in the interests of creditors generally. It must not be forgotten that those creditors include those who are in a familial relationship with Mr Attard, or are controlled by him. They still remain as creditors. Therefore, they must form a part of the consideration of what is in the interests of creditors generally. In this light, for the reasons set out above, I am not satisfied, given the state of the evidence, that the creditors' interests as a whole and generally, would be better served by setting aside the PIA and by the making of a sequestration order (s.222(1) of the Act). Nor, for similar reasons, as those set out above, had it been pressed, am I satisfied that any other reason exists for terminating the PIA and similarly allow the making of a sequestration order (s.222C of the Act).

The grounds of appeal 25 James Legal's notice of appeal contains the following grounds: 1. The trial judge erred by treating the Court's powers under Section 222(1) and (2) and Section 222C(1)(f) Bankruptcy Act, to set aside or to terminate a personal insolvency agreement, as limited to cases in which it was shown to be in the interests of creditors to set aside or to terminate the agreement. 2. The trial judge erred, in any event, in failing to conclude that the interests of creditors were not materially benefitted, by the personal insolvency agreement's provision to them of an estimated dividend of 3.1 cents in the dollar on their claims. 3. The trial judge erred by failing to address the questions and failing to hold, that each of the following criteria were satisfied: (a) the personal insolvency agreement was unreasonable (Section 222(1)(d)); (b) the personal insolvency agreement was not calculated to benefit creditors generally (Section 222(1)(d)); (c) the personal insolvency agreement ought be set aside on the other grounds propounded by the appellant in the Applicant's Statement Setting Out Grounds for Relief (Section 222(1)(e)); and (d) the personal insolvency agreement could not be proceeded with, without injustice or undue delay to the creditors (Section 222C(1)(f)). 4. Having accepted (at [53] and [59]) that there was an absence of satisfactory evidence to show the status as creditors of the non arm's-length creditors who voted in favour of the personal insolvency agreement, and whose votes were essential to the achievement of the statutory majority in favour of the agreement, the trial judge erred in not finding this a sufficient consideration, in itself, for the setting aside or termination of the agreement. 5. The trial judge erred in treating (at [118] and [131]) the votes of the non-arm's-length creditors as a factor militating against the setting aside of the personal insolvency agreement, notwithstanding the absence of satisfactory evidence of their alleged debts. 6. Having accepted (at [124]) that the only arm's-length creditors were the six creditors whose debts totalled $1,389,463.68 and who all voted against the personal insolvency agreement, the trial judge erred, in not finding this a sufficient consideration, in itself, for the setting aside or termination of the agreement. 7. The trial judge erred in treating the debtor's procuring of "arrangements" (subsequent to the personal insolvency agreement) for the "satisfying" of the debts due to four of the arm's-length creditors who had voted against the personal insolvency agreement, as being a consideration which militated against the setting aside or termination of the agreement. 26 Despite the breadth of the grounds of appeal in the notice of appeal, some at least of which in argument on the appeal rose no higher than identifying a different conclusion that could have been reached, or a different decision that could have been made, rather than identifying any legal error, the core argument upon which James Legal placed most weight was the validity of the PIA voting process itself, and in particular the asserted irreconcilable conflict between his Honour's finding at [53] that Mr Attard was unable to satisfactorily argue that he had a 'debtor/creditor' relationship with the main three entities voting in favour of the PIA (in context a finding that they were not demonstrated to be creditors at all), and then later considering the situation as if they were creditors, including in particular at [118] and [131] of his Honour's reasons. 27 There is no present need to detail all the arguments advanced by James Legal in the event that the issue of the validity of the vote was not to succeed, because, after detailed consideration of the submissions on appeal, the evidence before his Honour to which I was taken and his Honour's reasons on that topic, I am not satisfied that it has been demonstrated that the necessary error in the exercise of discretion has been established if the PIA voting was not successfully impugned. In my view, his Honour conducted a sufficiently thorough examination of the evidence and was entitled to reach the conclusion that, on the evidence before him, including evidence of Mr Attard that was not challenged in cross-examination, the real possibility of a better outcome for creditors had not been made out. James Legal faced a substantial, and ultimately insurmountable, hurdle in that regard. 28 The better argument for James Legal is the assertion that the PIA would never have been approved in the first place had the votes of entities not found to be creditors not been taken into account. The outcome of this appeal therefore turns on the validity of the vote by which the draft PIA was approved, and whether that is a sufficient basis to overturn the primary judge's decision not to overturn the PIA. It is not necessary to separately consider the question of the termination of the PIA, advanced as an alternative. This Court, in its appellate jurisdiction, ordinarily only needs to deal with grounds of appeal that are dispositive: Boensch v Pascoe [2019] HCA 49 at [7]-[8].

The PIA voting question and the exercise of appellate discretion 29 James Legal submits that the primary judge made a finding of fact at [53] to the effect that votes cast in favour of the PIA were cast by people who did not stand in a debtor/creditor relationship with Mr Attard, which, without more, should have entitled it securing an order setting aside the PIA. James Legal relies upon Moss v Gunns Finance Pty Ltd (Rec's and Mgrs Apptd) (In Liq) [2018] FCAFC 185; 31 ACSR 462; 16 ABC(NS) 325. Both James Legal and Mr Attard relied upon a range of other authority, but as it turned out it was not necessary to go beyond Moss v Gunns. 30 In Moss v Gunns, a PIA had been set aside upon numerous bases, one of which was that a creditor whose vote would have been sufficient to defeat the adoption of the draft PIA, was improperly not admitted beyond a nominal value. The Full Court, at [22] and [63], concluded that the primary judge had not erred in concluding that the PIA should be set aside under s 221(1)(e) as falling within the description in that paragraph of "for any other reason, the agreement ought to be set aside" based on the finding that the respondent debtor's debt was erroneously not admitted for its full claimed value for voting purposes. The Full Court said: (1) at [22]: It follows … that insofar as a s 221(1)(e) conclusion was reached that "for any other reason, the agreement ought to be set aside", this was based on the finding that the Gunns Woodlot debt was not admitted for its full claimed value. (2) at [63]: No error is demonstrated in the primary judge's conclusion that the Gunns Woodlot debt should have been admitted. No separate or independent argument was advanced that, in the event that this finding did survive challenge, the primary judge's exercise of discretion that the PIA ought to be set aside under s 221(1)(e) otherwise miscarried (see [22] above). It follows that because we have not disturbed the challenged finding, his Honour's decision to set aside the PIA under s 221(1)(e) has not been shown to be erroneous, and this is sufficient to support the orders made below. We will come back to this issue in the context of discussing the notice of contention. 31 As referenced in the last sentence at [63] in Moss v Gunns, reproduced above, the Full Court made additional findings in relation to a notice of contention. Those additional findings were obiter because they went further than was necessary to dismiss the appeal. However, they provide additional support for the conclusions reached that were not obiter. The Full Court found that the impact of an improper vote would justify the setting aside of a PIA under s 221(1)(d) as well. The Full Court said: [101] Fundamental to the process provided for in Pt X of the Act (which is commenced by the debtor signing a s 188 authority), is the involvement of properly informed and properly identified creditors. The obligation of the controlling trustee is to call a meeting of creditors and ensure for the provision of a draft PIA, and a Statement of Affairs outlining all known assets and liabilities of the debtor to these creditors and identifying, among other things, the debtor's property and how it is available to pay creditors' claims. In addition, the trustee is required to issue a report to creditors regarding investigations and containing a statement as to whether or not the PIA proposal is in the best interests of creditors. [102] At the meeting convened to consider the proposal, creditors may resolve that the debtor be required to execute a PIA. A reflection of the importance of ascertaining not only the identity of the creditors but the proper assessment of the value of their claims, is the requirement of a special majority for a PIA to be accepted. Obviously enough, whether the proposal is accepted or whether the creditors resolve that the debtor file for bankruptcy can only proceed in accordance with the legislative scheme if the controlling trustee has performed properly the critical role of identifying creditors and the correct value of their claims. [103] This is not a case where the error did not affect the outcome of the resolution. … [107] Irrespective of the position of related creditors, the fact is that the special resolution would simply not have passed if the proper view had been taken in relation to the proof of debt. The result did not reflect the will of creditors who represented 75 per cent of the money owed to those taking part in the vote. This is the fundamental difficulty with what occurred and requires that the PIA ought be set aside under s 221(1)(d). 32 At the appeal hearing, Mr Attard's counsel was, quite understandably, unable to provide any satisfactory basis for the sentence in [131] of the primary judge's reasons that the three impugned purported and voting creditors "still remain as creditors" to sit with the finding made at [53] and summarised at [18] above, to the effect that Mr Attard had not been able to satisfactorily argue that he had a debtor/creditor relationship with any of them. On any view, this is a serious flaw in his Honour's reasons. 33 Read literally, [53] and [131] of the primary judge's reasons reveals that, on his Honour's characterisation, despite Mr Attard not being able to satisfactorily argue that he had a debtor/creditor relationship with any of the main three purported creditors who had voted in favour of the PIA, they remained as creditors. Yet being shown to be a creditor, when that is challenged, is indispensable to demonstrate that there was the necessary numerical majority, and to the value majority, to approve that PIA. The votes of these three entities were indispensable for the numerical majority, and the vote of the first was indispensable for the value majority: see s 204 of the Act and the definition of "special resolution" in s 5. As the conclusion that the three entities were not creditors is a factual finding, and the reference to them still somehow, and inconsistently with that factual finding, being creditors was an otherwise unsourced conclusion, I consider that I must, or at least should, proceed upon the basis of the factual finding to the effect that a debtor/creditor relationship was not shown to exist (that being a fact in issue in the proceeding before the primary judge because James Legal squarely raised it). The unsourced and unfortunately illogical conclusion that those three entities remain as creditors in those circumstances must be put to one side as having no foundation, or at least contrary to the factual finding at [53] which has not been challenged by way of a notice of contention. 34 Mr Attard argues that even if this conclusion is reached, which is disputed but not meaningfully argued against, there still remains a question of the exercise of discretion. Mr Attard submits that it was still necessary for this Court to form a view that creditors were likely to secure a better return if the PIA was set aside and instead Mr Attard was made a bankrupt. Numerous authorities were relied upon to that effect, but I do not understand any of them to contemplate squarely this situation, let alone compel a different conclusion to that arrived at on this topic in Moss v Gunns. 35 While a decision to overturn the primary judge on the question of setting aside the PIA once a finding of error has been made undoubtedly involves a fresh exercise of discretion, and there may be cases in which even a fundamental defect in the PIA process is not, in all the circumstances, a sufficient reason to set it aside, this is not such as case. As Moss v Gunns makes clear, the defect may be so clear that the will of the creditors entitled to vote has so clearly not been taken into account so as to mean that the PIA should never have come into existence in the first place. I am comfortably satisfied that this is what has happened in this case. The primary judge therefore erred in failing to set aside the PIA. 36 In the course of argument, James Legal sought only a conclusion in its favour, and implicitly, an indication that the Court would be prepared not only to set aside the PIA, but also to make a sequestration order upon the meeting of any formal requirements that may need to be attended to. That is the conclusion I have reached. In those circumstances it is not necessary to go further and address points taken as to alternative arguments that the primary judge did not address upon the erroneous basis that they had been abandoned. I also see no reason why Mr Attard should not pay the costs of James Legal both on appeal and before the primary judge. 37 The parties are directed to confer and submit agreed or competing orders, including as to any further steps required to be taken, to give effect to the decision I have made that the PIA should be set aside and that a sequestration order should be made. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromwich.

Bankruptcy Act 1966(Cth)ss 188, 188A, 222, 222(1)(d), 222C

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