REASONS FOR JUDGMENT
This is an application by Bryan Douglas Staples and Susan Jane Staples ("the bankrupts") for review of the decision of the first respondent, the trustee in bankruptcy ("the trustee"), arising out of meetings of creditors of the bankrupts on 21 November 1997 and 3 December 1997, called by the trustee in response to proposals put forward by the bankrupts under s 73 of the Bankruptcy Act 1966 (Cth) ("the Act").
The application filed on 19 December 1997 seeks a review of the decision of the trustee to admit the proof of debt of each of the respondents. It seeks orders that the decision of the trustee be reversed and that each of the proofs of debt be rejected, either wholly or in part, and that the s 73 proposals of the bankrupts be approved, or another meeting of creditors be called to consider them.
In his written outline of submissions, the solicitor for the bankrupts submitted that the application was brought pursuant to s 104 of the Act. That submission was misconceived, in that s 104 provides for an appeal to the court by a creditor who is dissatisfied with the trustee's decision concerning admission of the creditor's proof of debt for payment of a dividend. That obviously is not this case. Firstly, the application has been brought by the bankrupts. Secondly, the trustee has not admitted proofs of debt pursuant to s 102 of the Act for payment of a dividend.
Rather, the subject matter of complaint is the decision to allow each of the respondents to vote, as a creditor, at the meetings of creditors called to consider the bankrupts' proposals and to ascribe to that entitlement a value for the purpose of determining whether the requisite majorities required for a special resolution were achieved. This was recognised by the solicitor for the bankrupts in his oral submissions in support of the application and the application proceeded on that basis alone.
Statutory context and right to review
A bankrupt may desire to make a proposal to his or her creditors for a composition in satisfaction of his or her debts or for a scheme of arrangement for his or her affairs. In that circumstance the provisions of s 73 of the Act are applicable. The proposal is lodged with the bankrupt's trustee (s 73(1)). The trustee then proceeds to call a meeting of creditors and sends to each creditor a copy of the proposal and the trustee's report on the proposal (s 73(2)). The creditors may by special resolution accept the proposal (s 73(4)).
A special resolution is defined in s 5 of the Act as a resolution passed by a majority in number and at least three-fourths in value of the creditors present personally, by telephone, by attorney or by proxy, at a meeting of creditors and voting on the resolution.
Section 73(5) makes special provision for a creditor who has proved his or her debt. In that case the creditor may assent to, or dissent from, the proposal by written notice to that effect delivered to the trustee before a meeting of creditors. In that event the creditor will be deemed to have been present at the meeting and to have voted according to his or her assent or dissent.
Meetings of creditors called to consider a proposal under s 73 are conducted in accordance with Division 5 of Part IV of the Act, so far as it is capable of applying, with such modifications, if any, as prescribed by the regulations to meetings of creditors under Division 6 of Part IV of the Act (s 76A).
Section 64ZA of the Act is within Division 5 Part IV. The section deals with entitlement to vote at a meeting of creditors. As there are no relevant regulations modifying the application of that Division to meetings of creditors convened pursuant to s 73, s 64ZA applies to the meetings of creditors in issue. Section 64ZA, so far as is relevant, provides :-
"64ZA(1) This section applies to voting:
(a) at an election under section 64P of a person to preside at a meeting; and
(b) on any motion proposed at a meeting or an amendment proposed to such a motion.
(2) In this section:
'creditor' means a creditor who, or whose proxy or attorney, participates in the meeting in person or by telephone.
(3) A person other than a creditor is not entitled to vote.
(4) Subject to subsections (5) and (6), each creditor is entitled to vote and has one vote.
.....
(8) The trustee may determine any question that arises as to the entitlement of a person to vote.
(9) If the trustee needs a period in which to determine a question referred to in subsection (8), the meeting is to be adjourned to such time, date and place as the meeting resolves, being a date not later than 14 days after the date of the original meeting, for the purpose of enabling the trustee to determine the question."
Where any question arises as to whether a particular person is entitled to vote, that question is to be decided by the trustee (s 64ZA(8)). The decision of the trustee is not a final ruling on a debt alleged by the person who claims to be a creditor and entitled to vote: Re Dingle; Westpac v Worrell (1993) 47 FCR 478 at 483; Re Levy; Ex parte Scholefield Goodman & Sons Ltd (1980) 50 FLR 99 at 112. Rather, the trustee's decision only determines the person's right to vote at the meeting: ibid.
Notwithstanding that s 64ZA provides no mechanism for review of a trustee's decision about a person's entitlement to vote, the court has a jurisdiction to review the trustee's decision. The jurisdiction is discretionary, is sourced in s 27 of the Act and given effect to by the exercise of the power conferred in s 30 and s 178 of the Act: Re Dingle; Westpac v Worrell at 485.
The court will be reluctant to intervene in cases unless persuaded that the determination of the question of entitlement to vote did affect, or, depending on the view taken, would have affected, the fate of the proposal by producing a different result: Re Dingle; Westpac v Worrell at 485 - 486.
The bankrupts, to succeed on the present application, must establish, on the civil standard of proof, that the creditor respondents, or some of them, were not creditors, and that if excluded from the vote the remaining votes cast were sufficient to satisfy the requirements for a special resolution: Re McLean Ex parte Friends' Provident Life Office (1992) 36 FCR 502 at 512.
Factual background
On 19 April 1994 the bankrupts executed authorities pursuant to s 188 of the Act authorising their solicitors to convene a meeting of creditors. That meeting took place on 24 May 1995. The creditors resolved at that meeting to accept a composition proposed by the bankrupts pursuant to Part X of the Act.
Subsequent to that meeting certain creditors commenced an action in this Court to have the composition declared void and set aside or terminated. At the trial of those proceedings the bankrupts consented to sequestration orders being made and the trustee was appointed as a result. The substance of those proceedings is not relevant here.
On 30 October 1997 the bankrupts submitted proposals for schemes of arrangement pursuant to s 73 of the Act. The proposals by each of the bankrupts relevantly consisted of an offer to pay $75,000 each, in instalments, to their creditors over a period of four years (the "s 73 proposals").
The trustee forwarded a circular to creditors on 6 November 1997 ("the Notice to Creditors") indicating that a meeting would take place on 21 November 1997. The Notice to Creditors indicated that a separate meeting of creditors would be held for each of the bankrupts and that the s 73 proposals put forward by each of the bankrupts were contingent on acceptance of the other; that is, if one failed, both failed. The trustee indicated that the proposals would be put to the separate creditors of the individual bankrupts and then, if accepted, to the bankrupts' joint creditors.
The trustee indicated in the Notice to Creditors that there were no assets available for dividend distribution to creditors. The trustee recommended that the bankrupts' proposal be accepted by creditors.
On 21 November 1997 the meetings of creditors took place at the office of the trustee. No formal votes were taken at the meetings and it was resolved to adjourn the meetings until 3 December 1997. However, "straw polls" were conducted at the meetings, the results of which indicated to the trustee that he required further information from certain creditors to allow him to adjudicate on the entitlement to vote of those creditors. The trustee also advised the creditors that the bankrupts' estates were without funds and that the trustee was owed approximately $33,000 for remuneration and disbursements. The trustee indicated that without funding from creditors, he was not prepared to advance the matter any further. The trustee confirmed his recommendation to creditors to accept the s 73 proposals.
At the meetings on 3 December 1997 the s 73 proposals were approved for the individual estates of the bankrupts. However with respect to the joint estate, the proposals were rejected. The poll resulted in 53.3 percent in number of the creditors and 62.2 percent in value of the creditors voting in favour of accepting the s 73 proposals. As only 62.2 percent of creditors, in value, had voted in favour of the proposals, the joint proposal failed to attract the support necessary to satisfy the requirements of a special resolution.
The bankrupts, by the application filed 19 December 1997, challenge the entitlement of Peter James Baker and Noela May Baker ("the Bakers") the second respondents, David Sutcliffe Firth ("Mr Firth") the third respondent, Keith Campbell ("Mr Campbell") the fourth respondent, and Bluechip Pty Ltd ("Bluechip") the fifth respondent (collectively, the "creditor respondents") to vote at the meetings of creditors and to ascribe to that entitlement the value determined by the trustee.
The application was originally heard by the District Registrar. At that hearing :-
(a) the bankrupts appeared through their solicitor;
(b) the trustee appeared and advised the District Registrar that he did not intend to participate and would abide any order of the Court; he then sought leave to withdraw which was granted;
(c) the bankrupts' solicitors undertook to keep the trustee informed of the progress of the proceedings;
(d) no other respondent appeared; although a representative from Bluechip was present in court, he chose not to appear; and
(e) affidavits of service were read by the bankrupts' solicitor, detailing service of the application on the creditor respondents;
(f) the District Registrar decided he did not have power to hear the application, and referred it to the Court.
No respondent to the application appeared on the hearing before me.
An affidavit from the bankrupts' solicitor set out details of correspondence with the respondents which indicated that none of the respondents, other than possibly Bluechip, would appear at the hearing and that they would simply abide the order of the Court.
The only evidence tendered at the hearing was by way of affidavit by the male bankrupt and the bankrupts' solicitor.
The Bakers' claim
The bankrupts and the Bakers had previously been in partnership carrying on business under the style or firm name of Sunburst Flowers. That business failed and a receiver was appointed to the partnership on 11 August 1992. There were, and remain, many unpaid partnership creditors.
After the winding up of the affairs of the partnership and the distribution of available funds to the creditors by the receiver, there remained debts, which were not disputed, totalling $282,849.66. It is by reference to this outstanding debt that the Bakers claimed to be, and were accepted by the trustee as, creditors of the bankrupts with a debt to the value of $111,428.
The Bakers alleged that the bankrupts, as between themselves and the Bakers, were liable for half of the outstanding debt, namely $141,428.60. The net dividend under the bankrupts' proposal at 10.5 cents in the dollar (the figure at the lower end of the range estimated by the trustee) would generate a payment of $29,995.98. Applied to the bankrupts' share of the partnership debt, that would leave outstanding the sum of $111,428.
The Bakers claimed that by virtue of the operation of s 12 and s 27 of the Partnership Act 1891 (Qld) ("the Partnership Act") and s 82 of the Act, they were contingent creditors of the bankrupts in respect of that amount of $111,428.
The bankrupts challenge the admission of the Bakers to vote as creditors for an amount of $111,428 because, it was submitted, the "debt" as claimed was not a contingent debt. It was submitted that the Bakers had not paid to the partnership creditors an amount in excess of their own half share of the partnership debts, and thus had no right to claim contribution from the bankrupts for $111,428 or any other sum. Nor, it was submitted, was there any evidence of a demand being made by the partnership creditors against the Bakers for payment of the bankrupts' share of the partnership debt.
The bankrupts also challenge admission of the Bakers' as creditors entitled to vote where a partnership creditor has lodged a proof of debt in the bankrupts' estate in respect of a partnership debt and the Bakers claim a contingent liability owing by the bankrupts to them arising out of the same debt.
In order to answer the question whether the Bakers were entitled to vote as a creditor, it is necessary to properly characterise a partner's obligations for the debts of a partnership and his or her right to contribution from co-partners.
Section 27 of the Partnership Act relevantly provides :-
"27. The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement express or implied between the partners, by the following rules :-
(a) All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses whether of capital or otherwise sustained by the firm;
(b) The firm must indemnify every partner in respect of payments made and personal liabilities incurred by the partner:
(i) in the ordinary and proper conduct of the business of the firm; or
(ii) in or about anything necessarily done for the preservation of the business or property of the firm;
(c) The partner making for the purpose of the partnership, any actual payment or advance beyond the amount of capital which the partner has agreed to subscribe, is entitled to interest at the rate of six percent per annum from the date of the payment or advance;
(d) A partner is not entitled, before the ascertainment of profits, to interest on the capital subscribed by the partner;
....."
There is no material before me to indicate that the rules provided in this section were varied by the partners in Sunburst Flowers.
Section 12 of the Partnership Act provides :-
"12. Every partner in a firm is liable jointly with the other partners for all debts and obligations of the firm incurred while a partner, and after the partner's death the partner's estate is also severally liable in the due course of administration for such debts and obligations, so far as they remain unsatisfied, but subject to the prior payment of the partner's separate debt."
Section 12 deals only with debts and obligations of a contractual nature.
The debts and obligations of the partnership are incurred jointly. That is, they create a single obligation incumbent upon all of the partners. This position is to be contrasted with the liability of partners for wrongful acts or omissions for which the partnership is responsible. In that circumstance, the liability of the partners is joint and several: s 15 of the Partnership Act.
The consequence of partners being jointly liable for contractual debts and obligations is that all must be sued in the one proceeding, and that if one or more of the partners is sued to judgment, no further action may be taken against the other partners who, although jointly liable, were not sued: Kendall v Hamilton (1879) 4 App Cas 504.
Partners, as co-obligors, are entitled to claim contribution inter se, when each has paid or provided more than his or her share of the joint debt: Royal Bank of Australia, Robinson's Executors (1856) 6 DeGM & G 572 at 587 - 588; 43 ER 1356 at 1362; Gye v Davies (1995) 37 NSWLR 421 at 427 - 428. The rule is the same with respect to joint co-sureties and other co-promisors: McLean v Discounted Finance Limited (1939) 64 CLR 312 at 328, 336 - 337, 341; Albion Insurance Co Limited v Government Insurance Office (NSW) (1969) 121 CLR 342 at 350 - 352; Mahoney v McManus (1981) 180 CLR 370 at 376.
In Gye v Davies, Powell JA said (at 428) :-
"... although a partner, or other co-obligor, is, as from the date of incurring of the relevant debt, or other liability, liable to a suit for contribution in the event that the other co-obligor or co-obligors have been called upon to pay more than his, or their, just share of the debt or other liability, that liability does not crystallise into a cause of action unless, and until, it is apparent that the other co-obligor, or co-obligors, have paid, or become liable to pay, more than his, or their, just share of the relevant debtor liability (Mahoney v McManus [180 CLR at 387] ..."
On the material, the Bakers, at the time of the meeting of creditors, had not paid more than their half share of the partnership debts. In those circumstances were the Bakers a "creditor" within the meaning of s 73 of the Act, and "a creditor entitled to vote" under s 64ZA?
In Pyramid Building Society (in liq) v Terry (1997) 148 ALR 714, the majority, Gaudron and Gummow JJ, with whom McHugh J agreed, said :-
"The term 'creditor' is used in various senses throughout the [Bankruptcy] Act. It takes its colour from the particular context."
In the context of s 73 and s 64ZA, absent some express or implicit modification or limitation, "creditor" carries its ordinary meaning in a bankruptcy statute being a creditor who is entitled to prove his or her debt or claim to a money sum in the bankruptcy of the bankrupts: Dingle; Westpac v Worrell at 498; Zantiotis v Andrew (No 2) (1988) 80 ALR 299 at 302.
There are two circumstances which independently lead to such a construction. The first is that the proposal arises in respect of a person whose estate is in the process of being administered in bankruptcy. The second is that the proposal, if accepted, will lead to a composition or scheme of arrangement which "is binding on all creditors of the bankrupt so far as relates to provable debts due to them from the bankrupt" (s 75(1)). Thus, the subject matter of the proposal as it concerns creditors is the provable debts of the bankrupt and they are the "debts" to which s 73(1) and s 75(1) refer. The creditors to which the sections refer are those whose debts are likely to be affected by the vote and to whom the trustee is required to report on "whether the proposals would benefit the bankrupt's creditors generally" (s 73(2) and s 73(2A)).
Did the Bakers have a debt provable in the bankruptcy? That question is answered by reference to s 82 of the Act, which provides :-
"82(1)Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.
(1A) Without limiting subsection (1), debts referred to in the subsection include a debt consisting of all or part of a sum that became payable by the bankrupt under a maintenance agreement or maintenance order before the date of the bankruptcy.
(2) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract, promise or breach of trust are not provable in bankruptcy.
(3) Subject to subsection (3A), penalties or fines imposed by a court in respect of an offence against a law, whether a law of the Commonwealth or not, are not provable in bankruptcy.
(3AA) An amount payable under an order made under paragraph 1317EA(3)(b) of the Corporations Law of a State or Territory is not provable in bankruptcy.
(3A) An amount payable under a pecuniary penalty order or an interstate pecuniary penalty order is provable in bankruptcy.
(3B) A debt is not provable in a bankruptcy in so far as the debt consists of interest accruing, in respect of a period commencing on or after the date of the bankruptcy, on a debt that is provable in the bankruptcy.
(4) The trustee shall make an estimate of the value of a debt or liability provable in the bankruptcy which, by reason of its being subject to a contingency, or for any other reason, does not bear a certain value.
(5) A person aggrieved by an estimate so made may appeal to the Court.
(6) If the Court finds that the value of the debt or liability cannot be fairly estimated, the debt or liability shall be deemed not to be provable in the bankruptcy.
(7) If the Court finds that the value of the debt or liability can be fairly estimated, the Court shall assess the value in such manner as it thinks proper.
(8) In this section, 'liability' includes:
(a) compensation for work or labour done;
(b) an obligation or possible obligation to pay money or money's worth on the breach of an express or implied covenant, contract, agreement or undertaking, whether or not the breach occurs, is likely to occur or is capable of occurring, before the discharge of the bankrupt; and
(c) an express or implied engagement, agreement or undertaking to pay, or capable of resulting in the payment of, money or money's worth, whether the payment is:
(i) in respect of amount - fixed or unliquidated;
(ii) in respect of time - present or future, or certain or dependent on a contingency; or
(iii) in respect of the manner of valuation - capable of being ascertained by fixed rules or only as a matter of opinion."
As at the date of the s 73 meetings of creditors, the Bakers did not have an accrued cause of action against the bankrupts for contribution in any certain amount. Not having paid in excess of their half of the partnership debts, the Bakers had no presently enforceable right to contribution for the excess. At best, they had a right to contribution which was contingent upon the partnership creditors calling upon the Bakers to pay more than their half share of the partnership debts, and the Bakers paying, or becoming liable to pay, more than their half share. If they are to be entitled to prove, it will be in respect of a contingent liability of the bankrupts to indemnify the Bakers in respect of payments by them in excess of their half share. Is that contingent liability one which falls within s 82?
The Act, including s 82, is to be interpreted against what has been described as the common law of bankruptcy: Faulkner v Bluett (1981) 52 FLR 115 at 118. One of the principles of the common law of bankruptcy is the rule against double proof; there cannot be two claims in respect of the one debt: Day & Dent Constructions Pty Ltd (in liq) v North Australian Properties Pty Ltd (1982) 150 CLR 85 at 100; State of Western Australia v Bond Corp Holdings Ltd (1992) 37 FCR 150 at 162 - 163; In re Oriental Commercial Bank Ex parte European Bank (1871) 7 Ch App 99.
In the case of a surety, where the principal creditor proves in the bankrupt estate of the principal debtor, or may prove in the bankrupt estate, the guarantor cannot prove in the principal debtor's bankruptcy in respect of the contingent liability of the principal debtor to the guarantor: Re Fenton; Ex parte Fenton Textile Association [1931] 1 Ch 85.
The position was stated by Tadgell J in Westpac Banking Corporation v Gollin and Co Ltd (in liq) [1988] VR 397 at 409 :-
"Payment by a guarantor pursuant to his guarantee before the bankruptcy of the principal has always entitled the guarantor to prove in the principal's bankruptcy, subject to the rule against double proof. Indeed, until the Bankruptcy Act 1908 (49 Geo 3c 121, s 8) a surety could only prove, and the bankrupt only obtained a discharge against him, for money paid by the surety to the creditor before the bankruptcy: eg Taylor v Mills (1777) 2 Cowp 525. The point was that, unless the surety had paid before the bankruptcy, the debtor had not become indebted to him at the commencement of the bankruptcy and, since provable debts had to exist at that time, no proof lay. The statute (now reflected in the commonwealth Bankruptcy Act 1966, s 82(1)) enabled a surety to prove for money paid pursuant to the guarantee after the commencement of the bankruptcy. The fact of payment by the guarantor before the commencement of the principal's bankruptcy does not, however, elevate the payment to a status that it did not have before the statute. The guarantor's right to prove was always, and still is, subject to the rule against double proof. If, therefore, the guaranteed creditor is entitled as between himself and the guarantor to prove for the whole of the guaranteed debt, notwithstanding a part payment pursuant to the guarantee made by the guarantor, whether before or after the bankruptcy, the guarantor's right of proof will be postponed to the creditor's proof. That is this case."
There is in principle no reason why the same rule ought not to apply in respect of co-obligors. In substance, the claim of the partnership creditor in respect of the debt for which a proof of debt has been, or is capable of being lodged, is the same debt which gives rise to the contingent liability (see the discussion of French J in State of Western Australia v Bond Corp Holdings Limited at 162 - 163).
In the present case, partnership creditors have lodged proofs of debt in the bankrupts' estate which have been accepted by the trustee as entitling the partnership creditors to vote with respect to debts totalling $128,741. Absent evidence that the outstanding partnership creditors have renounced their right to prove in the bankrupts' estate, the Bakers remain unable to prove for the balance: In re Fenton, Ex parte Fenton Textile Association at 120. The Bakers are, in consequence, prohibited by the rule against double proof, from proving in respect of the same debts.
In my view the Bakers were not creditors entitled to vote on the basis claimed by them at the meeting of creditors to consider the bankrupts' proposal pursuant to s 73 of the Act.
Mr Firth
The application in respect of Mr Firth was not pressed at the hearing and no findings are required or made.
Mr Campbell
Mr Campbell lodged a proof of debt for $48,750 which was admitted to vote by the trustee in the sum of $25,000. The claim arose out of the purchase and disposal of land at Raby Bay, Queensland. The male bankrupt deposed that the land was acquired by a partnership consisting of Mr Campbell, the Bakers, the bankrupts and Mr and Mrs Staples (the parents of the male bankrupt). Although numbering seven, the evidence is that the interests were held as to twenty-five percent by each family group. In the way the trustee has dealt with Mr Campbell's proof of debt, it would appear that the trustee has also treated the partnership interest as being held four ways.
Mr Campbell contributed $60,000 to the capital of the partnership. Mr and Mrs Staples contributed $40,000. The male bankrupt deposed that $20,000 of that sum was a loan to the bankrupts and paid by Mr and Mrs Staples into the capital of the partnership on behalf of the bankrupts. The Bakers contributed nothing to the capital of the partnership. The balance of the funds necessary to acquire the land was borrowed from a bank.
The land acquisition and sale was not a successful business venture and the $100,000 was lost. The implication from the way the partnership was conducted is that losses of capital would be borne in the same proportion as the interests in the partnership were held. Consequently, the loss of $100,000 would be borne by each family group in an amount of $25,000.
Mr Campbell, having paid in excess of his fair share, has a right to recover from his solvent partners the excess payment: Mahoney v McManus at 376. He also has a right to prove in the estate of the bankrupts for the full share of the contribution due by the bankrupts for the loss of capital: In re Hendry Ex parte Murphy [1905] SALR 116 at 119.
The trustee has not accepted that the payment by Mr and Mrs Staples was, to the extent of $20,000, made on behalf of the bankrupts. Accordingly, the trustee admitted the proof of Mr Campbell to vote for the full amount of the contribution to the loss, $25,000. The circumstances show no error of law on the part of the trustee in his determination on the entitlement to vote.
The question is whether the court should intervene and make contrary findings of fact on the basis of the bare statement of the male bankrupt, albeit not cross-examined in this application, that the payment was made on the bankrupts' behalf. There is no evidence from Mr and Mrs Staples (Snr) as to the basis upon which, and for what purpose, they made the payment of $20,000. Evidence of the male bankrupt as to the intention, purpose and legal effect of the payment of Mr and Mrs Staples is not admissible to prove each of those matters. In the absence of admissible evidence from Mr and Mrs Staples (Snr), I decline to interfere with the trustee's decision.
Bluechip
The trustee accepted the proof of Bluechip to vote to the extent of a debt of $22,680. Although Bluechip was represented at the meetings of creditors, it did not vote. Therefore the ruling of the trustee on Bluechip's entitlement to vote did not effect the outcome of the vote in any respect. In the circumstances, I decline to undertake any review of the trustee's decision to allow Bluechip to vote.
Lest it be thought that I approve the approach taken by the trustee in respect of the claim of Bluechip to vote as a creditor, I make the point that the decision of the trustee under s 73(8) to allow a person claiming a right to vote as a creditor cannot be an arbitrary one unrelated to the facts or lacking a reasonable basis in fact and law entitling the person to payment. Where a creditor refuses to give particulars of the debt or to supply some credible evidence of its creation and non-payment, the trustee should pause before exercising the power under s 73(8) to enable that person to vote as a creditor, and require that material be provided which establishes, to the trustee's satisfaction, that in truth and reality a provable debt exists.
Relief
Ultimately the bankrupts did not seek any order that the s 73 proposals put to the meeting of creditors on 3 December 1997 be given effect to as approved by the requisite majority. Nor did the bankrupts press the application for an order that the trustee call another meeting of creditors "to reconsider the s 73 proposals made by the bankrupts" (paragraph 6 of the application).
In the written outline of submissions an order was sought directing the trustee to call a meeting "to reconsider a new section 73 proposal put forward by the applicants" (original emphasis). On the hearing that order was not pressed. This was a proper course, in my view, because any new proposal is subject to the regime provided in s 73 itself and the trustee's obligations are contained in the section.
The sole remedy sought by the bankrupts on the hearing of the application was a declaration that the second, fourth and fifth respondents were not entitled to vote at the meeting of creditors held on 3 December 1997. For the reasons outlined above, I decline to interfere with or to review the trustee's decision concerning the fourth and fifth respondents respectively.
The position as to the Bakers is different because it involves legal error on the part of the trustee in treating the Bakers as creditors entitled to vote.
Although I was prepared to review the decision in the particular circumstances of this case, the question of what relief, if any, should flow from such a review remains open.
The utility in making a declaration of the entitlement of the Bakers to vote at the meeting on 3 December 1997 is highly doubtful. Such a declaration does not lead to a different outcome for the proposal put at that meeting. Nor would such a declaration prevent the Bakers seeking to establish a right to vote on any further proposal put by the bankrupts under s 73. Such an entitlement would be determined at the appropriate time having regard to the circumstances then existing and by the application of proper legal principle. If the circumstances remained unchanged from those that existed on 3 December 1997, then the Bakers would have no such entitlement. That, however, would flow from the application of relevant legal principles to the then existing facts, and not from any declaration as to past entitlement.
If the bankrupts intend to put forward new proposals under s 73, the question of entitlement to vote will arise at any meeting of creditors called by the trustee pursuant to s 73 to consider those new proposals. If there is a dispute, then it will fall to the trustee to make a decision under s 73(8). I am not persuaded that there is any basis on which the court can, or should, attempt to pre-empt the content and effect of that decision.
As the proofs of debt already lodged with the trustee have not been admitted for the purpose of any dividend under s 102 of the Act, there is no basis to challenge, in these proceedings, the proofs of debt as lodged, in order to determine an entitlement to participate in any dividend. Should the occasion arise where the trustee makes a decision to admit proofs of debt for the purpose of a dividend, then the bankrupts may take such action as they may be advised in respect of the trustee's decision to admit any proof at that time.
In the result, I am not persuaded that any useful order can be made. Nor am I persuaded that the bankrupts are entitled to orders in the form sought in paragraphs 2, 3, 4, 5 and 6 of the application and, in fairness, the solicitor for the bankrupts did not press for such relief.
The limited declaratory relief sought as to the entitlement to vote at the meeting of 3 December 1997 lacks the utility which underlies the court granting such relief. In those circumstances the application is dismissed.