Re Dingle; Westpac Banking Corporation v Worrell & Anor

nd respondents respectively. Each application was in the following terms:- "APPLICATION is made ... for the following orders:

1. A declaration that the Deed of Arrangement between Peter Ivan Felix Geroff and Gregory Michael Moloney (the Trustees) and Neville Loeskow (the Debtor) made on 24 August 1994 is void upon the ground that the resolution that the Debtor execute a Deed of Arrangement which was proposed at the meeting of creditors held on 18 August 1994 was not carried as a special resolution.
2. A sequestration order against the estate of the Debtor. ..." His Honour made a sequestration order against the estate of the debtor (Loeskow) who brings these appeals seeking in substance, though not in form, a reversal of the sequestration order and the reinstatement of the Deed of Arrangement. BACKGROUND Loeskow, a businessman in the Bundaberg area, was, by 1994, in substantial financial difficulties and was clearly in a state of insolvency. He was heavily indebted to the second respondent ("the Bank"). The first respondent ("Avokah Irrigation"), a company with which he was associated, on 3 June 1988 had entered into a Deed of Guarantee with the Bank which guaranteed the repayment to the Bank of "all monies ... now or hereafter to become owing or payable to the Bank by the debtor ...". The guarantee was a whole moneys guarantee. On 19 July 1994 Loeskow signed an authority pursuant to s 188 of the Act by which he authorised Peter Ivan Felix Geroff and Gregory Michael Moloney, registered trustees, to take control of his property and call a meeting of his creditors. The meeting was duly called on 18 August 1994. Twenty creditors attended with claimed debts amounting to $13,978,752.00. Loeskow's statement of affairs dated 18 July 1994 showed a deficiency of liabilities over assets of $12.274M. The Bank claimed a debt of $3,155,828.00. Avokah Irrigation claimed a debt of $403,310.95, this being the amount it had by that time paid to the Bank under the guarantee. The full amount of the Bank's debt was $3,559,138.00. However, it claimed only $3,155,828.00 on the basis that it had already received from Avokah Irrigation the sum of $403,310.95. Mr Geroff was elected chairman of the meeting. He referred to the "proofs of debts" that he had received prior to the commencement of the meeting and proceeded to announce those debts which he accepted or rejected for the purpose of the meeting. He accepted the Bank's debt of $3,155,828.00 but rejected Avokah Irrigation's debt. In relation to the rejection of this debt he made the following statement to the meeting:- "Dealing firstly with the proof of debt from Avokah Irrigation in the amount of $403,310.00, it relates to the sale of that company's assets to meet obligations under guarantee given by Avokah Irrigation Pty Ltd to the Commonwealth Bank of Australia for advances made to Neville Loeskow. The guarantee is for the entire amount of the debt and it is my advice that where there was only a partial payment of that debt the guarantor cannot prove in the debtor's bankruptcy in competition with the creditor. That is the advice I have been given. I also --- having perused the guarantee document under clause 13 signed by Avokah Irrigation, specifically precludes the guarantor from proving in competition with the bank whilst the bank's debt remains unpaid." There was discussion at the meeting in relation to this ruling, in which were involved particularly the solicitor representing the Bank and the solicitor advising Mr Geroff. The Bank's solicitor inquired whether the Bank was allowed to prove for the rejected debt in place of Avokah Irrigation. An inconclusive discussion then took place as a result of which the Bank did not seek to increase the size of its claim to include the amount rejected. It may be noted that it was not contended in the proceedings before the primary Judge, nor in this appeal, that relevant error occurred in the conduct of the meeting through any refusal on the part of the chairman to allow the Bank to increase the size of its claimed debt. The only error relied upon, in this aspect of the case, is an alleged unlawful refusal on the part of the chairman to accept Avokah Irrigation's proof of debt. In the result, the refusal to accept this debt was a critical factor at the meeting. The proposal put to the meeting was that Loeskow enter into a Deed of Arrangement, the effect of which was to provide for the payment of $50,000 to the trustee for the benefit of his creditors. It was indicated that these funds were to come from persons and entities related to Loeskow. The meeting was informed that after allowance for the costs of the administration, there would be a pro rata distribution to proving creditors of about one five hundredth of a cent in the dollar. The meeting passed a special resolution approving of the proposal. Had Avokah Irrigation's proof of debt been admitted and, had it voted against the proposal, the special resolution would have been defeated. The Bank and Avokah Irrigation then made the applications which were heard and determined by the primary Judge. Before considering the case at first instance, I find it convenient to set out the statutory framework in which the questions for determination arose. THE STATUTORY FRAMEWORK Loeskow sought to utilise the provisions of Pt X, Div II of the Act. He sought that his affairs be dealt with under Pt X without his estate being sequestrated and accordingly, pursuant to s 188 he signed an authority authorising Messrs Geroff and Moloney, as registered trustees, to call a meeting of his creditors and to take over the control of his property. The meeting was duly called after the appropriate report (s 189A) and notices of the meeting were forwarded to the creditors (s 194). Entitlement to vote at such a meeting is dealt with by s 198 of the Act. This section relevantly provides as follows:- "198(1) Subject to this section, every creditor is entitled to vote at a meeting under this Division. ... 198(4) A creditor is not entitled to vote (otherwise than in respect of the election of a chairman of the meeting), unless he has made known