Re Tripodi, A. v. Ex parte Col Johnson Pty Ltd [1987] FCA 7

Bankruptcy Act 1966, ss.116(2)(b), 203, 222, 223A, 225(4), 235, 236.

Re Williamson; Ex parte Wearne (1980) 43 F.L.R. 305

Re Beames; Ex parte Beneficial Finance Corporation Limited (1985) 7 F.C.R. 216

Re Doukidis; Ex parte Consolidated Constructions Pty. Ltd., unreported, Toohey J., 26 June 1985.

Beard v. Prestige Baking Industries Pty. Ltd. (1981) 52 F.L.R. Chiragakis v. Deputy Commissioner of Taxation, unreported, Fisher, Davies and Lockhart JJ., 11 July 1986.

RE TRIPODI; EX PARTE COL JOHNSON PTY. LIMITED W.219 of 1984x

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY

Where Order Made: Sydney Date of Order: 22 January 1987

The application be dismissed. The applicant pay the costs of the Official Trustee.

Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY

This 1s an application by a creditor to the Court for an order under s.222(2) of the Bankruptcy Act 1966 (the Act) in respect of a Deed of Arrangement made under the provisions of Part X. In the alternative, the applicant seeks, pursuant to $.235(b), an order declaring that the deed was terminated by a special resolution of creditors or, pursuant to s.236, an order of the Court terminating the deed. The applicant also seeks, in the event that an order is made under s.222 or the deed 1s terminated, a sequestration order against the estate of the

On or about 18 October 1984 the debtor, Mr. Tripodi,

signed an authority under s.188 of the Act authorising one

BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY

This is an application by a creditor to the Court for an order under s.222(2) of the Bankruptcy Act 1966 (the Act) in respect of a Deed of Arrangement made under the provisions of Part xX. In the alternative, the applicant seeks, pursuant to $.235(b), an order declaring that the deed was terminated by a special resolution of creditors or, pursuant to s.236, an order of the Court terminating the deed. The applicant also seeks, in the event that an order is made under s.222 or the deed is

terminated, a sequestration order against the estate of the

On or about 18 October 1984 the debtor, Mr. Tripodi,

signed an authority under s.188 of the Act authorising one

Lindsay Robert Aitken, who was then a registered trustee, to call a meeting of his creditors. Mr. Aitken sent out appropriate notices under s.194(2) in respect of a meeting of creditors to be held on 15 November 1984, which was adjourned to 29 November 1984, On that day a special resolution was passed, pursuant to s.204, requiring the debtor to execute a Deed of Arrangement under Part X in a form which was tabled at the meeting. On 17 December 1984, that is within the period of 21 days provided by

s.216, the deed was executed by the debtor and the trustee, and

At the meeting of creditors on 29 November 1984 a statement of affairs in an appropriate form, and duly verified, was produced. However, the applicant and another creditor were not mentioned in this document, and they did not receive copies of the notices of the meeting which were sent out. There were also a number of omissions from, and errors in, the statement of affairs. It will be necessary to examine these matters in some

It is convenient to dispose at the outset of the question raised under s.235. It appears that the trustee sent a

notice dated 12 July 1985 to creditors which contained the

"TAKE NOTICE that a meeting of creditors of Armando Tripodi of 196 Fitzgerald Avenue, Maroubra, in the State of New South Wales,

will be held at the offices of Messrs Aitken, Hargreaves & Turner, Suite 23, Jacob's Court,

Cnr Jacob's Street & Rickard Road, Bankstown on the 23rd day of July, 1985, at 10:00 a.m. for the purpose of considering the position of the Deed of Arrangement and if thought fit extending the period of the Deed of Arrangement."

Mr. Aitken is no longer the trustee, since on 8 October 1985 the Court cancelled his registration as a trustee under the Act and appointed, pursuant to s.220(2)(b), the Official Trustee to act as trustee. Mr. Aitken has not given evidence, nor has any person been called to give evidence before me of what transpired at the meeting of 23 July 1985 called by this notice. However, there 1S in evidence a letter from Mr. Aitken to the applicant's solicitors which makes the bare statement that at a meeting of the creditors on that date "1t was resolved by a special resolution that the Deed of Arrangement should be terminated"; but the letter proceeds to express doubt, without specifying the reason for the doubt, as to whether the resolution was effective, and states an intention to apply to the Court for directions. No

There is also in evidence what purports to be a copy of minutes of a meeting of creditors of Mr. Tripodi held 23 July 1985. This document provides for the inclusion of the names of those present, but that part of the document has been left blank, as have other parts of it. It indicates that Mr. A1tken himself was in attendance and acted as chairman. It also indicates that a Mr. Knox was present, but he was not a creditor and the

capacity in which he was present 1s not stated, although I infer

that he was an employed accountant in the office of one of the joint liquidators of Tripodi Nominees Pty. Limited (in liquidation), the largest creditor of Mr. Tripodi. The minutes contain no suggestion that he presented a proxy, and there has been no explanation of the applicant's failure to produce evidence from Mr. Knox. If in fact Tripodi Nominees Pty. Limited (in liquidation) was present by him as its proxy, one would have expected such evidence to be available. The minutes represent Mr. Knox as having moved a motion arguably amounting to a motion to terminate the Deed of Arrangement, but do not indicate who

seconded that motion. Indeed every motion referred to in the minutes is described as seconded, with a blank following that

The vital part of the minutes commences with an incomplete statement (by which I mean there appears to have been something left out for some reason in the typing of it) by the chairman inviting the moving of a Special Resolution, followed by

a statement by Mr. Knox which concludes as follows:

"I propose to move a motion that in view of the default by the debtor, and his obligations under the Deed of Arrangement, this meeting of creditors hereby resolve by Special Resolution under Section 235(B)(sic)

of the Bankruptcy Act, 1966 to terminate the Deed of Arrangement dated the 17th of December, 1984."

It will be noted the alleged default is not specified, and the

language Mr. Knox is reported to have used is strictly not the

language of moving a motion but of foreshadowing a motion

proposed to be moved at a later stage of the meeting. It says he

I declare the motion carried as a Special Resolution.

'That Mr. Lindsay Robert Aitken be authorized to approach the Court for a declaration that that (sic) the Deed has been terminated effectively by a Special Resolution and a sequestration order be made against the estate of Armando Tripodi.'

Counsel for the debtor argued that the minutes evidenced no more than a Special Resolution to authorize Mr. Aitken to approach the Court. However, I think to take this view would be to sacrifice common sense to pedantry. The infelicity of the language attributed to Mr. Knox would not, if the minutes were otherwise satisfactory, prevent them being construed as indicating that two separate Special Resolutions were passed, the former providing for termination of the Deed of Arrangement, and

the latter authorizing the trustee to approach the Court for a

declaration that the former had been effective and also for the making of a sequestration order. But as I have already

It is true that by s.225(4) minutes signed in accordance with s.203 are "prima facie evidence of the proceedings at the meeting". But these minutes are on the face of them incomplete, and there is no evidence that a copy was filed pursuant to s.203(4), or that any proxy entitling Mr. Knox to vote had been lodged with the chairman as required by s.200(3). No such proxy was produced from the files of Mr. Aitken, although a copy of the notice calling the meeting and a copy of the purported minutes were apparently in those files. Sections 200 and 203 are made applicable by s.223A; there are no rules modifying that position. In the circumstances, it seems to me that this is a case which should not be resolved by any automatic acceptance of what s.225(4) makes only prima facie evidence. In the laght of all the other aspects of the matter to which I have referred, I am not prepared to accept that prima facie evidence as resolving the question whether in fact at a duly constituted meeting the

But quite apart from the problems I have been discussing, I do not think a Special Resolution, even if one had been duly passed, could have had the effect the applicant claims. The relevant provision of s.235 does not leave it open to any

meeting of creditors to pass such a Special Resolution. What it

"A deed of arrangement is terminated by... (b) the passing of a special resolution to

that effect by a meeting of creditors called for the purpose."

It seems to me that it 1S important that the Court should insist upon strict compliance with this provision. If a meeting is called for some other purpose, creditors who might have strong views favouring the continuance of the Deed of Arrangement may not think it necessary to attend. In any case, the language of the statute 1s clear: it 1s only at a meeting called for the purpose that the special resolution may be passed. In the present case, the notice calling the meeting makes it clear that it was not called for the purpose of passing such a special resolution, but for an almost precisely contrary purpose. I am not satisfied that the terms of s.235(b) were complied with, and accordingly I dismiss the application in so far as it relies on

It is convenient at this point to refer to the terms of the Deed of Arrangement of 17 November 1984. It recites the inability of the debtor to pay his creditors in full, the giving of written authority to the trustee pursuant to s.188 of the Act and the Special Resolution passed on 29 November 1984. The operative portion of the Deed then states that 1t 1s entered into pursuant to Part X and the Resolution, and that Mr. Aitken shall

be trustee. Certain of the succeeding clauses are particularly

The terms (sic) of this Arrangement shall be from the date hereof until the final distribution of the funds from J. & M. Investments Pty. Limited or the 30th day of June, 1985 or such further time as Creditors by resolution

Notwithstanding Clause 3 herein the Debtor shall be entitled at any time to

make a lump sum payment in discharge of his obligations herein and thereafter the Trustee being satisfied the Debtor has complied with the Arrangement may issue the Debtor with a release from all his debts in accordance with Section 234 of the Act.

{a) Pay to the Trustee the greater of the sum of Twenty thousand dollars ($20,000.00) by way of lump sum payment or the total distribution to the Debtor from J. & MM. Investments Pty. Limited as and when received.

(b) Assign to the Trustee for the benefit of the Debtor's creditors the whole of his estate with the following exceptions:-

(1) Any estate title or interest he has in the property located at 196 Fitzgerald Avenue, Maroubra, and

(iz) His shares interest and entitlement in J. & MM. Investments Pty. Limited (In Liquidation).

(c) Accept all directions of the Trustee relating to the financial affairs of the Debtor during the term of the Arrangement and do all things directed by the Trustee to

assist the Trustee in the performance of his duties hereunder and the collection of the Debtor's

(d) Do everything in his power to cause the payment hereunder to be paid as soon as possible, and whereever (sic) possible, prior to the date provided.

6. 6.1 Subject to 6.2 hereof the Debtor hereby assigns conveys and transfers to the Trustee all of the property which, if the Debtor had been made a Bankrupt at the date of

the execution of the said authority, would have been divisable (sic) amongst the

creditors of the Debtor pursuant to Part VI of the Act.

6.2 Notwithstanding 6.1 above the Debtor shall, subject only to the Satisfactory discharge of his obligations herein, be entitled to retain possession of and ownership of:-

(a) His share and interest in the property located at 196 Fitzgerald Avenue, Maroubra, and

(b) His share title and interest in J. & M. Investments Pty. Limited (In Liquidation).

It was argued that there was such uncertainty as to the correct construction of Clauses 3 and 5 that, if I should not otherwise accede to the application, I should terminate the deed under s.236 of the Act. But although the drafting of the deed

can be criticised, I think the intention is sufficiently plain.

It must be construed against the background of what, I infer, was the known position of the company J. & M. Investments Pty. Limited, then in liquidation by virtue of a Special Resolution passed 7 September 1984. It is clear from the evidence that the debtor expected to receive a distribution upon finalisation of the liquidation which, after allowing for a set-off, would be an amount approaching $20,000.00. In the event, distributions have been received by the Official Trustee under the deed totalling

$16,605.29, and it has not been disputed that a further (probably

It seems to me the intention of the deed is to provide that the creditors will receive the total amount of the distributions to the debtor, and in addition that 1f that total falls short of $20,000.00 the debtor will make it up to the figure of $20,000.00. That much is clear. It is the reference to "the 30th day of June, 1985" in Clause 3 which has provoked argument. However, I think that, reading Clause 3 with Clause 5, the key to the construction of the deed 1s an understanding that the primary measure of the time for performance of the debtor's obligation is the period until the date of the final distribution referred to. But if that payment should occur before 30 June 1985, the debtor was to have until 30 June 1985 to make any topping-up payment required from him. Of course, there was no way of knowing, at the time the deed was entered into, whether the final distribution would occur before or after 30 June 1985,

and in any eventuality the final words of Clause 3 were intended

to give the creditors power to extend time which should otherwise

be applicable. Further, by Clause 5(d) it was provided that the debtor would do everything in his power to cause "the payment hereunder", that is the full $20,000.00, or the full amount of the distribution in the event that it exceeded $20,000.00, to be paid as soon as possible and, should that prove possible, prior

I do not think there is any real difficulty in attributing a practical operation to Clause 3 in this way by regarding the alternative, "or the 30th day of June 1985", as referring to the possibility that final distribution might occur, before that date, in an amount that would require something to be done by way of a topping-up payment, in respect of which it was necessary to specify within what period the debtor would comply with his obligation. On well known principles, the Court should not destroy the bargain by attributing to the parties a nonsensical intention to introduce an alternative date for compliance, not tied to any event, and so as to leave it entirely uncertain whether the deed required compliance by one or other of two different dates. Indeed, such a complete uncertainty would not really follow even if I should be wrong in my construction of the instrument. For it would then be open to construe it as giving the debtor a choice to make or procure the payment by one or other of the two dates, one specified and the other ascertainable in the event, subject to his obligation under Clause 5(d) to try to achieve the earliest payment within his

There has been no suggestion that the debtor has offended against Clause 5(d), nor could any such suggestion come easily from the applicant, having regard to the attitude it has

taken. In my view, the applicant's reliance upon the terms of

I turn to the more substantial aspects of the application which rely on the terms of s.222 of the Act. The applicant draws attention to a number of omissions from the

Statement of Affairs produced to the meeting of creditors, and a

The Statement of Affairs was made as at 31 October 1984, and was verified by affidavit sworn by the debtor on 29 November 1984. It was not compiled personally by the debtor, but by professional advisers on the basis of information and documents supplied by him and by creditors. It was in the appropriate form, with a summary showing an amount owed to unsecured creditors of $849,437.00 and an amount by which secured debts exceeded the value of securities according to Part III of the Statement of $15,403.00, a total of $864,840.00 liabilities, After allowing for relatively small amounts of property and a debt owed to the debtor, a total deficiency was declared of $797,340.00. Nineteen unsecured creditors were named, of whom six were shown as owed between $10,000.00 and $20,000.00 and' only one exceeded that range, identified as "Tripodi Nominees (In

There were a number of secured creditors disclosed. In particular, the debtor disclosed that he owed $300,000.00 to

first, second, third, and fourth mortgagees upon the security of his house at 196 Fitzgerald Avenue Maroubra, the estimated value of which was shown at $300,000.00, but in which he had only a half share. Although the document did not show 1t, it is common ground that the other half interest belonged to his wife. Apart from the house, securities disclosed as encumbered in favour of secured creditors were a half share in a property described as "Golden Valley Drive, Glossodia"™ (which I understand is vacant land somewhere in the Colo Shire), a security described as "lease on horse known as 'Meteor Flash'", and a security described as "lease on billiard table". A deficiency of $15,000.00 was shown in respect of the amount secured upon the Glossodia property, and a small deficiency was shown in respect of that secured on the billiard table, but a surplus of $4,000.00 was shown in respect of the security relating to "Meteor Flash", the estimated value

The property disclosed was household furniture and effects estimated at $5,000.00, and ten shares in J. & M. Investments Pty. Limited (In Liquidation) estimated at $20,000.00, being I conclude the estimated amount of the total distribution to which reference has already been made. There was also a motor vehicle estimated at $1,500.00. The only debt due

to the estate which was shown was the sum of $37,000.00 due from

Sofome Pty. Limited. This was a company which had been acquired

as a shelf company by the debtor's daughters in the previous September, in order to carry on (under licence from Tripodi Nominees Pty. Limited (in liquidation)) a fruit and vegetable business managed by him. The debt was, it will be recalled, excluded from the property transferred by the Deed of Arrangement, and there was no évidence to suggest that, as a practical matter, it was recoverable. The debtor gave some evidence under cross-examination to the effect that, whilst he was managing Sofome Pty. Limited, it was forced by suppliers to pay cash on delivery of supplies and, despite his financial plight, needed an injection of some of his scarce resources. It is likely, having regard to the terms of the minutes of the creditors' meeting, that the creditors (and probably the liquidators of Tripodi Nominees Pty. Limited were in a position to know) were satisfied that they were giving up nothing of substance by excluding this debt. They were, too, permitting the debtor to carry on his daughters' business, thereby earning a wage from which he would be able to make the payment contemplated by the deed in the event that the distributions from J. & M. Investments Pty. Limited (in liquidation) should fall short of $20,000.00. Similarly, 1t would appear that the exclusion of the debtor's shares in J. & M. Investments Pty. Limited (in

liquidation) was of no moment, since the creditors were to

receive the total distribution to the debtor from that company.

The exclusion of Mr. Tripodi's interest in the property

at 196 Fitzgerald Avenue Maroubra is of greater importance, and

requires separate consideration. On the face of the Statement of

Affairs, and in the absence of evidence suggesting otherwise, I infer that this exclusion was substantially based on _ the proposition that, whatever the precise value of the property, it was unlikely there was any realisable surplus which could be made available for the creditors, having regard to the extent to which it was mortgaged. I shall return to the subject of its value, which was a matter of particular contention at the hearing; however I comment, concerning its exclusion under the deed, that the significant thing was it was so completely encumbered, and if 1ts value had been somewhat greater than the estimate, but the mortgages had also been somewhat larger than the round figures shown in the Statement of Affairs, the position from the point of view of the creditors would not have been materially different. In fact, the secured debts were shown as $110,000.00, $110,000.00, $60,000.00, and $20,000.00 respectively, making a round total of $300,000.00 which was also shown as the estimated value of the security. It is not at all likely that the creditors thought these were precise figures, since they would have expected mortgages to a bank and finance companies to have been accruing interest, and such neat round figures must have been regarded as approximations, or alternatively as statements of the principal, in respect of the interest on which precise

The applicant's points of claim were amended on a number

of occasions. The final version, erroneously entitled "Second

Amended Points of Claim", complains that at the meeting of ereditors Mr. Aitken gave misleading advice, and that the debtor omitted material particulars from, and included incorrect and material particulars in, the Statement of Affairs. So far as the advice furnished by Mr. Aitken is concerned, the complaint is that he told the creditors that the billiard table and the household furniture and effects were not available in a bankruptcy or under a Part X arrangement. But it was not disputed that the billiard table was wholly encumbered, so that in fact it was not available in this particular case to unsecured creditors. So far as the household furniture and effects were concerned, they were not excluded from the deed when it was entered into (except insofar as s.116(2)(b), despite the terms of $.237(2), may have applied to them by virtue of cl. 6.1 of the

deed). I shall return to their value later in these reasons.

The complaints concerning the Statement of Affairs were referred to in lettered paragraphs, and I shall deal with them by reference to those paragraphs, which formed particulars of

(a) This complaint referred to the omission of the applicant's name from the list of unsecured creditors, and the consequential failure of Mr. Aitken to send notice of the meeting to the applicant. The omission and the failure were not disputed, and the applicant's debt was also not in dispute. The

applicant was owed under three dishonoured cheques a total of

$23,286.28. The debtor explained the omission of the applicant from the list of unsecured creditors on the basis that he had made a special arrangement with the applicant's director, a Mr. Johnson, for payment by instalments, and then put the debt out of his mind as a separate issue which had been taken care of. There were in fact a number of instalments paid in respect of the applicant's debt at about this time, including some after the Deed of Arrangement had been executed, and Mr. Johnson's evidence confirms that some such arrangement as the debtor referred to had in fact been reached. In all the circumstances, I accept the debtor's explanation as true, though of course it does not

It is convenient at this point to note that the debtor was cross-examined at very considerable length. The cross~examination was wide-ranging, much of it being based on documents produced on subpoena from various sources, raising a Mumber of issues which had not been pleaded and of which it 1s unlikely the debtor had any real notice. Both his demeanour and the substance of his answers impressed me favourably; I thought he was candid and was endeavouring to present a truthful picture. There is no doubt that some of the matters he acknowledged were adverse to his interests, but the acknowledgments were Straightforward. Mr. Johnson also, I thought, endeavoured to tell the truth to the best of his ability, but I think his memory of relevant matters was extremely unreliable, and in the witness

box 'he made it clear that he was conscious of this himself.

(b) Another unsecured creditor omitted from the Statement of Affairs was Borg-Warner Acceptance Corporation (Australia) Limited, a creditor in the sum of $6,853.43. The debtor attributed this omission to pure oversight. The debt was the balance due under a guarantee of an obligation of Tripodi Nominees Pty. Limited. The guarantee had been entered into by

the debtor and his wife on 28 August 1981, and the company had

(bb) The Points of Claim alleged omission of a debt owed to the debtor by J. & M. Investments Pty. Limited of $50,000.00. [In argument, counsel for the applicant said it was intended to allege that there had been the omission of a debt owed by the debtor in this amount. Mr. Tripod1 explained that he had received such a sum from the company as an advance, which was to be set off against his entitlement to a distribution in its winding-up, and had in fact been taken into account when that entitlement was estimated at the sum of $20,000.00 already mentioned. I accept the debtor's explanation, but I am by no means satisfied that he understood the legal quality of the arrangement under which the sum was paid and, if it were important to analyse it precisely, I would be concerned at the absence of evidence from the company's professional advisers concerning the true nature and object of the transaction, which

is described in the minutes as an interest free loan at call.

However, the substance of the situation was that Mr. Tripodi was

not going to have to repay the sum of $50,000.G0 to J. & M. Investments Pty. Limited (in liquidation), but on the contrary was going to receive a further sum approximating $20,000.00, his right to which was disclosed. Having regard to the terms of the form of deed which was tabled and the resolution which was passed, it is extremely probable that questions were asked at the meeting of creditors about the debtor's entitlement in respect of J. & M. Investments Pty. Limited (in liquidation), or that unformation on that subject was otherwise available to the creditors. There is no suggestion that any such question was answered misleadingly, or that any information conveyed was untrue. Indeed, the applicant called no evidence from any of the creditors present at the meeting. Although some reliance was said to be placed by the applicant on s.222(4){a) of the Act, there was no evidence of any false or misleading information in

answer to any question put to the debtor at the meeting.

(bbb) It is admitted that there was an omission from the Statement of Affairs of a debt of $14,943-48 owed to R. & M. Tripodi Pty. Limited, a company the shares in which were owned in equal proportions by the debtor and his wife. This is the company which had title to the property at Glossodia. The

(c) It is admitted that the secured debt owed to Westpac Banking Corporation, secured upon the Maroubra property, was

understated at $110,000-00, being in fact $125,220-19. The

explanation, which I accept, is that the debt had not been

precisely calculated and the figure of $110,000-00 was an

(d) It is admitted that the secured debt owed to Australian Guarantee Corporation, also secured on the Maroubra property, was

understated at $110,000-00, the correct figure being $116,813-21.

(e) It is admitted the secured debt owed to Hunter BNZ Finance Limited was understated at $20,000-N0, being in fact approximately $60,000-00. At first sight this seems harder to understand, but I think the explanation may be found when the item is considered in conjunction with item (£) to which I shall

(f£) It 1s admitted the Statement of Affairs was incorrect in showing that the debtor owed Hunter BNZ Finance' Limited $35,000-00 in respect of a mortgage on property at Glossodia, when the mortgage was actually in the name of the company R. & M. Tripodi Pty. Limited and not in the name of the debtor. As pleaded, the allegation, which was simply admitted, did not extend to possible complications in respect of the equitable interests in the mortgage, but was concerned with the name in which 1t had been given. It may well be that the explanation of the two matters referred to in paragraphs (e) and (f) is a

relatively unimportant error in the filling out of the prescribed

form, in which amounts are attributed to separate securities. As I have said, the property at Glossodia was shown as a half interest the subject of a security. In fact, it appears the debtor and his wife owned equally the shares in the company R. & M. Tripodi Pty. Limited which was the proprietor of the land. It is not suggested that the Statement of Affairs was in error in stating that the secured debt exceeded the value of the security by approximately $15,000-00. The debtor's clumsy ripping of the corporate veil suggests to me nothing more than a lack of a fine perception of distinctions of company law; it was neither

(g) A very much more important matter is the hotly disputed allegation that the Statement of Affairs was incorrect in attributing to the property at 196 Fitzgerald Avenue Maroubra the value of $300,000-00 instead of a sum of approximately $420,000-00 (or as it was put in paragraph (gg) $350,000-00).

The applicant relied on evidence suggesting that this property had been valued (or at any rate estimated) at the stated alternative figures, which had been propounded by finance consultants. It was also suggested that figures higher than $300,000-00 had emanated, in connection with applications for

finance, from the debtor himself, or at least from his advisers.

The debtor denied that he had thought the value exceeded

$300,000-00, though in cross-examination he conceded, when it was

put to him that a finance broker had asserted a figure of $350,000-00, that he may have told the broker that figure. So far as the still higher figure of $420,000-00 is concerned, I do

not think there is any acceptable evidence that such a figure

But in my view the question whether the estimate of value given in the Statement of Affairs was or was not in error is, in this case, resolved by the only acceptable valuation evidence which is before me. That evidence is the affidavit of Mr. R.S. Montague who is an associate of the Australian Institute of Valuers, is employed by Raine and Horne Commercial Pty. Limited, and has had seven years experience in valuing property. Mr. Montague inspected the property in question, gave consideration to comparable sales in the area, and in addition to sales in the exclusive South Coogee residential area, and checked his valuation by the summation method. He was not cross-examined, although there was no suggestion that he was unavailable for cross-examination. Mr. Montague considered that the value of the property in March 1986 was $300,000-00, and that in December 1984 its value would have been somewhat less, about $285,000-00. Accordingly, on Mr. Montague's evidence, far from understating the value of the house which was to be excluded from the deed, the debtor's estimate rounded it up to a figure which gave the creditors the full benefit of the highest value which

If the debtor was frank with his creditors, it is not to the point to suggest that he may have been less so in his applications for finance. It is possible that he considered finance companies could lock after their own interests. But it has not been established by the evidence that in fact he himself

did misrepresent the position to any finance company.

Before parting with the subject of the house, it is not irrelevant to observe that the applicant's director, Mr. Johnson, stated in evidence that he knew all along that this property was heavily mortgaged. Mr. Johnson's statement highlights the fact that the real issue for the creditors revolved, not around the precise value of that property, but around the fact that the mortgages secured upon it at least equalled that value. This is the way the minutes suggest both the house, and also the land at Glossodia, were seen at the meeting of 29 November 1984. It is somewhat curious that the applicant complains in paragraphs (c), (d) and (e) that the secured debts were understated by some $60,000-00, and at the same time complains in paragraph (gg) that the security was understated by approximately $50,000-00; if both allegations were true the resulting position, from the point of view of the unsecured creditors, would be almost precisely the

(h) This allegation is admitted. It is simply that the Statement of Affairs represents the debtor as the owner of the property at Glossodia when that property was in fact owned by R.

& M. Tripodi Pty. Limited. I have already discussed this matter.

(hh) This allegation refers to the horse "Meteor Flash". It

is alleged the horse was incorrectly included in the securities referred to in the Statement of Affairs, since it was owned by the finance company, not mortgaged to such a company. In the column headed "Particulars of Security", there was shown: "Lease on Horse known as 'Meteor Flash'", and the "estimated value of security" was shown as $10,000-00, leaving a surplus of $4,000-00 over a debt of $6,000-00. The fact appears to be that the horse

Though the Statement of Affairs gave but sparse information, it did disclose an asset, being a leasehold interest. What the creditors understood, as indicated by the minutes of the meeting of 29 November 1984, was that "there may be an equity in (the horse) of $4,000". From a practical point of view, the real question was not whether the interest of the lessee was strictly a "security", but whether it was worth the estimated surplus of $4,000-00. The applicant's evidence left

(i) It is admitted that there was an omission from the Statement of Affairs of a bank account, referred to as a Bank of New South Wales Post Office branch Leichhardt account, with a sum in credit at the date of the Statement of Affairs. However the

sum in credit was negligible. The account was an account used

for punting purposes, though 1t would appear not exclusively so,

since cheques drawn on it in favour of the applicant formed part of the applicant's case. The applicant's argument was that the omission was material because disclosure of the account might have led to questions about it which might have uncovered material matters. Money had passed through this account a few months previously, and the debtor acknowledged in cross-examination that $10,000-00 had been paid out of it in respect of a punting debt and a further $10,000-00, which had been withdrawn, had been lost punting. These sums had formed part of an amount of $50,000-00 deposited into the account, being the sum mentioned earlier in these reasons received from J. & M. Investments Pty. Limited. Although Mr. Tripodi's recollection was not entirely clear, I think it is probable that the balance of $30,000-00 was utilised (perhaps not all of it directly) in the business of Sofome Pty. Limited, and formed the nucleus of

(j & k) These allegations refer to the omission of the debtor's Shares in R. & M. Tripodi Pty. Limited, a company which had ceased trading, and Tripodi Nominees Pty. Limited (in liquidation). Both are admitted. I am satisfied the debtor, who disclosed the wholly encumbered property of the former company at Glossodia, simply did not think of disclosing separately the shares, which were of little value, and that he thought the shares in Tripodi Nominees Pty. Limited (in liquidation) were valueless, as they probably were. Additionally, it is alleged

that there was a failure to disclose shares in Sofome Pty.

Limited. This is denied on the basis that there were no shares

in that company owned by the debtor. The applicant ultimately

{m) It was alleged that the property at Glossodia was omitted from Part V (Property) of the Statement of Affairs. The Glossodia land has already been discussed in relation to a complaint that it was referred to in another part of the Statement of Affairs (dealing with securities for secured debts) although it was in fact owned by the company R. & M. Tripodi Pty. Limited. The secured debt was shown as exceeding the value of the security, and the meeting of creditors appears to have

(mm) This allegation refers to the failure to disclose property of J. & M. Investments Pty. Limited. But the debtor's shares in that company were disclosed, and they were the relevant

(mmm ) This allegation relates to the debtor's interest in the furniture in the Maroubra home, shown in the Statement of Affairs at an estimated value of $5,000-00. On the basis of certain loan documents, the applicant alleged that the furniture in fact had a value of $40,000-00 or alternatively $70,000-00. I am satisfied that the figures in those loan documents did not reflect, and were never intended to reflect, the actual value of the

furniture, The debtor was able to produce a valuation by Geoff

K. Gray (Valuations) Pty. Limited, as at 20 March 1986. Making all allowance for the difference in date and for some minor divergences in the evidence itemising the furniture, I am quite satisfied that this is the most reliable indication of value adduced before me. I accept it. The $5,000-00 set out in the Statement of Affairs is of course an estimate in relation to the debtor's half interest in the furniture, and that half interest, a little over a year later, was worth, according to the

(mmmm ) Under this heading, allegations were made that four separate items, totalling $95,000-00 in value, were omitted from the Statement of Affairs. Three of the items were not pressed in argument, so I shall say no more of them. The remaining item is stated to be: "wine to the value of $15,000-00." The debtor explained that he had purchased wine over a period of years, with more appreciation than knowledge, and it had not shown the pleasant maturation which he had expected, but instead had been spoiled. He said he had about 200 bottles, which were of no real

(n) The final allegation in paragraph 22 of the Points of Claim is that the debtor incorrectly stated in the Statement of Affairs that he had not previously become a bankrupt, whereas he had in fact become a bankrupt on 6 May 1968. The debtor explained that he understood that bankruptcy had been annulled, and in any case he had paid 100 cents in thé dollar to all his

Section 222 of the Act, so far as material, provides:

"(1) Where there is a doubt, on a specific ground, whether a deed of assignment or a deed of arrangement was entered into in accordance with this Part or complies with the requirements of this Part, or whether a composition has been accepted by a special resolution of a meeting of creditors under section 204, the Registrar, the trustee, a creditor or the debtor may apply to the Court for an order under sub-section (2).

(2) Upon the hearing of an application made under sub-section (1), the Court may, subject to this section, make an order -

(a) declaring that the deed or composition is vo1d, or that it is not void, on the ground specified in the application; or

(b) declaring that a provision of the deed is void, or is not void, on the ground specified in the application.

(3) The Court shall not make an order declaring a deed to be void on the ground that it does not comply with the requirements of this Part if the deed complies substantially with those requirements.

(4) Where the Court, on the application of the trustee or a creditor, 1s satisfied that the debtor -

(a) has given false or misleading information in answer to a question put to him with respect to his conduct, trade dealings, property or affairs at the meeting of creditors at which the resolution requiring him to execute the deed or accepting the composition was passed; or

(b) has omitted a material particular from the statement of his affairs under section 195 or included an incorrect and material particular in that statement, .

the Court may make an order declaring the deed or composition to be void or declaring

any provision of the deed or composition to be void.

(S) The Court shall not make an order declaring a deed or composition, or a provision of a deed or composition, to be void on a ground specified in sub-section (4)

unless it is satisfied that it would be in the interests of the creditors to do so.

It is clear that after these provisions have been activated by the appropriate proofs, there remains in the Court a discretion whether or not, in the light of all the relevant

circumstances, to make the order sought: Re Williamson; Ex parte

Wearne (1980) 43 F.L.R. 305; Beard v. Prestige Baking Industries Pty. Ltd. (1981) 52 F.L.R. 384 at 399, 426; Chiragakis v. Deputy

Commissioner of Taxation (Fisher, Davies and Lockhart JJ., unreported, 11 July 1986). Where the applicant relies on sub-s.(4), as distinct from sub-ss.(1) and (2), there is also the additional hurdle of sub-s.(5) which forbids the Court to make an order "unless 1t is satisfied that it would be in the interests of the creditors to do so". In Re Williamson, Lockhart J. at 314 expressed the view that, to avoid this hurdle, a ground

relied on under sub-ss.(1) and (2) would need to be a ground that

In Re Beames; Ex parte Beneficial Finance Corporation Limited (1985) 7 F.C.R. 216, attention was drawn to the

difficulty an applicant may have in surmounting sub-s.(5).

"rt should mention that I consider s.222(5) is too restrictive. It may permit to stand a deed which should in truth be declared void, because of the difficulty of establishing that the declaration would be in the interests of creditors. A declaration may make no difference whatever in that respect and yet be a proper course for other reasons."

In that case Pincus J. thought there had been reprehensible concealment of a relevant circumstance which would, if he had had an unfettered discretion, have led to the setting aside of the deed; yet he was unable to be satisfied that it would be in the interests of creditors to set it aside, since there was nothing to be gained by doing so. A mere speculative possibility that something might be achieved by bankruptcy proceedings was not

In Re Beames Pincus J. at 230 expressed the view that:

• "To comply with s.222(5) it 1s not necessary that the facts show that the creditors will or might get any large benefit from the setting aside of the deed; at the least, however, it must appear that in some respect the creditors may be better off if the deed is voided."

In Re Doukidis; Ex parte Consolidated Constructions Pty. Ltd.

(unreported, Toohey J., 26 June 1985) Re Williamson and Re Beames

"It may be, for instance, that Mr. Doukidis in truth had no assets or no assets of any value at the time of the composition. In that

event it would serve little purpose to set aside the composition. That is not to say that the Court need be satisfied on this hearing that there were undisclosed assets. It is, I think, enough if the evidence justifies an inference that there are likely to have been assets and that the creditors

may be better off if the composition 1s set aside. Re Beames at 30-31. Even then the Court must have regard to all relevant matters including the interests of creditors and of the public. Re Dolman; Ex parte Elder Smith Goldsborough Mort Ltd. (1967) 10 F.L.R. 384. In my view this includes the conduct of

the creditor who seeks to set aside the composition."

These remarks were made in the context of a composition which offered the creditors no dividend, there being allegedly no

I respectfully agree with the opinions I have quoted concerning what has to be proved to satisfy s.222(5). I would add only the comment that, if Pincus J. is right in thinking the sub-section too restrictive, it would be even more so if the Court took a narrow view of the test as stated in those judgments. I think a broad view should be taken, and in a proper case 1t 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

In the present case it is clear that there were omissions from and errors in the particulars set out in the Statement of Affairs. Although it was argued that these were not material, and a number of them clearly were not, I think it is proper to conclude that the terms of paragraph (b) of $.222(4) were satisfied. Paragraph (a) does not apply since it was not shown that any question put to the debtor at the meeting was answered in the manner that paragraph specifies. It remains to consider, under $s.222(5), whether the making of the order sought would be in the interests of the creditors and, finally, how the

The applicant submitted that the setting aside of the deed, followed by a sequestration order and public examinations under s.69 and s.81, might lead to the recovery of further assets or the making of an order under s.131 in respect of some part of Mr. Tripodi's income. A difficulty about these submissions is that Mr. Tripodi has already, in this application, been cross-examined at great length and in detail, and that full use has been made of the opportunity to subpoena any records which might have been thought likely to assist in a _ rigorous investigation of any possibility of an asset. As I have made clear, I was impressed with Mr. Tripodi. I am satisfied that it is very unlikely that the contemplated examinations would uncover any further significant assets, or that Mr. Tripodi, who is

married and has a child still at school, would be ordered to make

/ any significant contribution from his income, which 1s not considerable. Counsel for the applicant urged that the debtor's ability to meet his mortgage interest payments suggested he must have additional resources, but this was not put to the debtor in cross-examination. In any case, the evidence suggests the payments in question are in arrears, and that the major mortgagee is controlled by a friend of the debtor, who may have extended him leniency. Nor should it be overlooked that the mortgaged

house is a family home of which the debtor is but a part owner.

The applicant stressed the admitted payments in respect of punting activities at a time when the debtor's affairs must already have been hopeless. This is a serious matter which would have to be weighed with the other circumstances in the exercise of a judicial discretion. But I think the debtor was honest in his answers about it, and it was not suggested that his gambling was a facade behind which any assets were fraudulently withdrawn and concealed. WNo prospect was shown that any of the money lost could be recovered. In my view the remarks of Lockhart J. in Re

"If I were to accede to the submissions of counsel for the applicants and avoid the deeds and then either make summary sequestration orders or leave it to the creditors to decide whether fresh deeds should be executed, I have the firm view that, at the end of the day, what little there may be available now for unsecured creditors will be spent in more legal and administration costs, whittling away even further what remains for unsecured creditors, without any benefit to them or the public. I must take a practical view and not indulge in

speculation as to theoretical possibilities of other assets emerging or other creditors possibly coming to light if the debtors are made bankrupt. There is nothing to suggest that either possibility would become a

This passage was referred to with approval by Pincus J. in Re Beames at 230 and was applied by me in Re Welch; Ex parte Knight (unreported, 2 July 1986). I think it expresses the approach which should be adopted in the present case. I am not satisfied that it would be in the interests of the creditors to make the order sought, and I am not prepared to exercise my discretion in

The applicant relied, in addition to the matters which arose under s.222(4), on matters arising under sub-ss.(1) and (2), and particularly, on the failure to notify the applicant and another creditor of the meeting at which the special resolution relating to the Deed of Arrangement was passed. As I have indicated, this failure was not disputed, though I am satisfied, having regard to Mr. Johnson's own evidence, that the applicant was aware that such a meeting was proposed and did not intend to raise any objection. It is also clear that an agent of the applicant, who was not called, had been told that a meeting was proposed, and had spoken to Mr. Johnson about it. Mr. Johnson suggested that his passivity was, influenced by a misunderstanding as to the effect of a deed of the kind entered into, a misunderstanding apparently rooted rather in his layman's view of

the obligation which gave rise 'to the applicant's debt than in

any misunderstanding of the nature of the creditors' meeting. [In

any case, the applicant also delayed for a long period after it became fully aware of the position, before launching the present application. That these are relevant matters is made plain by

the passage quoted earlier from the judgment of Toohey J. in Re

But leaving aside these matters, I do not think I should exercise my discretion in favour of the applicant. I accept, of course, that although "the inadvertent omission of some creditors will not necessarily result in the invalidation of the deed", an order under s.222 "may be made when it appears that a number of creditors whose debts are of substance have not been given an opportunity to attend a meeting called under s.194": Re Kleiss; Ex parte McDonough (1968) 15 F.L.R. 281 at 283. I also consider that the discretion, in such a case, is wide enough to permit the Court to take into account all the relevant circumstances, including the other matters proved in this case which could not in themselves found an order because of the barrier raised by sub-s.(5). However, in the light of the matters already discussed, I do not think this is a case 1n which an order should be made, Had I taken a different view, it would have been necessary to consider whether the applicant could surmount sub-s.(3), the debts of the two creditors relied upon being so small in comparison with the creditors as a whole, and Mr.

The applicant relied, as an alternative to $s.222, on

$.236, but I do not think in the circumstances there would be

sufficient reason to exercise under that section a discretion

which I am not prepared to exercise under s.222 or, insofar as

"that section also requires a finding in respect of the interests

of creditors, that I should make such a finding for the purposes of s.236: cf. Beard's case (supra, at 402). However, those questions do not arise because the applicant's reliance upon $.236 was, in my opinion, misconceived. The section is the equivalent, as a special provision applicable to deeds of arrangement, of $.242, a special provision applicable to compositions. What Toohey J. said in Re Doukidis (supra) of

$.242 must be true, mutatis mutandis, of s.236. Toohey J. said:

"On its face s.242 is concerned with a situation in which no objection is taken to the composition itself but it is said that for various reasons, including failure by the debtor to. comply with a term of the composition, the composition should be terminated. -.The use of the expression 'terminated' is not consistent with setting aside a composition; rather it suggests bringing to an end a composition because it cannot be carried into final effect.

In my view s.242 is quite inapplicable to the circumstances relied upon by Consolidated Constructions. I do not overlook that para. (c) speaks of 'any other reason' but this has to be read conformably with the apparent purpose of the section. It is not simply $.222 or s.239 in another guise."

I have already dealt with a different submission put in reliance on s.236, that the deed should be terminated because of

its uncertainty. As I construe the deed, it is not relevantly

Finally, by a late amendment, the applicant relied on the fact that the debtor and his wife utilised the furniture as part security in refinancing their house after the deed had been entered into. Under the loan arrangements, the furniture was transferred to a finance company and leased back to the debtor and his wife. Counsel argued that this provided a ground for

The minutes of the meeting of creditors, relied upon to support a different argument discussed earlier in these reasons, Suggest that Mr. Aitken, who became the trustee, stated the household furniture and effects were excluded, presumably under s.116(2)(b) of the Act. It would be a drastic consequence to visit upon the debtor if I were to regard his subsequent action in respect of his interest in the furniture, worth as I have found in March 1986 only $4,270.00, as requiring me to terminate the deed. [It 1s not suggested that he or his wife were ever called upon to take any step towards the realisation of his interest in the jointly owned furniture for the benefit of the creditors. From at latest July 1985, there has been great uncertainty as to whether or not the terms of the deed were to be carried out. The debtor was not responsible for that state of affairs. Some of the furniture may indeed be excluded from the operation of the deed, having regard to the terms of cl. 6 and s.116(2)(b). Failure by a debtor to carry out or comply with a

provision of a deed of arrangement is a serious matter and

establishes the ground contained in s.236{1)(a), but that ground is discretionary and is subject to sub-s.(2) forbidding the making of an order unless the Court is satisfied that it would be in the interests of the creditors to make the order. In all the circumstances I am not so satisfied, and I would not so exercise my discretion. I do not doubt that the relatively small value the furniture has been proved to have, or so much as may survive a proper application of the terms of s.116(2)(b), can be recovered by the trustee. If not, a further ground might well

come into existence upon which the Court might make an order.

For these reasons, the application should be dismissed.

The question of costs raises difficulties of its own. Although the applicant fails, and no party should be ordered to pay its costs (cf. Re Williamson supra at 315), there were a number of matters which I have found against the debtor which were of a kind to provoke enquiry, and might well have been thought to justify the bringing of an application to the Court. The conduct of the case complicates the picture: as against the debtor, his solicitor was responsible for loss of time on the first hearing day, and as against the applicant numerous late amendments (some made only to be abandoned), and issues on which it wholly failed, significantly prolonged the hearing. The costs of the Official Trustee should be provided for, and I do not think the burden should be borne by the other creditors who took

no part in the proceeding brought by the applicant. In all the

circumstances, I think justice will be done if I order that the

applicant pay the costs of the Official Trustee and that there be

I certify that this and the preceding thirty-eight (38) pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Burchett.

Counsel for the Applicant: Solicitors for the Applicant: Counsel -for the Official Trustee: Solicitors for the Official Trustee: