Richards, Re P.L. Ex Parte Beneficial Finance Corp. Ltd [1986] FCA 79

Federal Court of Australia|1985-06-26|Before: Toohey J, Jackson J

The applicant seeks an order under s.239(1) of the Bankruptcy Act 1966 setting aside a composition accepted by the creditors of Peter Leigh Richards ("the debtor")at a

meeting of creditors which occurred on 5th December 1985.

"(2) If the Court, on such an application, considers

are not calculated to benefit the creditors generally

or that for any other reason the composition ought to

be set aside, it may make an order setting it aside

It is convenient, in determining whether any of the tests stated in s.239(2) is satisfied, to turn first to the terms of, and circumstances leading to, the resolution of

In the statement of his affairs which was submitted by the debtor pursuant to s.195(1)for the purposes of the meeting the debtor stated that his liabilities consisted of amounts owing to unsecured creditors totalling in all $277,571.73 and that his assets consisted of book debts amounting to $2,500.00. On that basis there was thus a total

By s.204(3) a special resolution accepting a composition is required to specify the terms of the composition. The special resolution in the present case stated those terms in the following way:-

Composition the sum of $4,000.00 on or before the 6th

That the moneys received by the Trustee be distributed as follows:

(a) Firstly, payment of the Controlling Trustee's remuneration and expenses.

(b) Secondly, payment of the costs of administering the Composition including the remuneration of

It was resolved on the same day that the "remuneration" referred to in paragraphs 2(a) and 2(b) of the resolution be fixed at a total sum of $1,000.00. The Chairman also intimated at the meeting that the overall result of the composition, taking into account costs, would be that there would be approximately $2,700.00 available for distribution to

creditors and that creditors in the end would receive about

The amount offered pursuant to the composition in settlement of the debts is so trivial when compared to the total of the debts that in the circumstances of the particular case I would regard that fact alone as a sufficient "other reason" in terms of s.239(2) for setting the composition aside. I take that view because it seems to me that in a case where a debtor having gross assets amounting to only $2500.00 has been prepared to incur debts amounting to a hundred times that amount, the case is better dealt with by way of bankruptcy (thereby giving rise to such matters as public examination of the bankrupt and other persons under s.81) than pursuant to the rather more bland provisions of Part X dealing

There is, however, a further feature which leads me

-4- to the same conclusion and it is that in August 1983 the debtor had given to the applicant a statement of his assets and liabilities which showed that he had assets of $617,000.00

and liabilities of $150,000.00, leaving a surplus of

East Malvern $190,000. Furniture 25,000. Ulysses Richards Holdings 95,000. Momentum Greetings 67,000. Investment in Elegance 210,000. Cash on Hand 30,000. "

At the meeting of creditors to which I have referred

Mr Anthony, the applicant's Collection Manager, sought to

The debtor said that the property at East Malvern had been sold, and that the proceeds had been used to pay out the mortgagees, leaving the second mortgagee partly unsatisfied. The debtor then stated, as the minutes of the meeting record, that "he had no equity in any company or in any family trust". He was taxed by Mr Anthony with the

position in relation to P.L.R. Investments Pty Ltd (a company

-5- in which Mr Anthony had discovered that the debtor was the holder of one of the two issued shares) and the minutes of the meeting record that the debtor stated that that company had no

assets and that the trust for which it acted as trustee had no

Mr Anthony then stated as was the fact, that company searches in January 1985 disclosed that the debtor was a director of Ulysses Richards Nominees Pty Ltd and that P.L.R. Investments Pty Ltd held 21,700 A Class shares in that company, the issued capital of Ulysses Richards Nominees Pty Ltd being 170,120 shares. It seems probable that Ulysses Richards Nominees Pty Ltd is the company referred to as "Ulysses Richards Holdings" in the statement of assets given by the debtor to the applicant in 1983. The minutes also

"Mr Anthony said that in 1983 Mr Richards had an equity of $95,000 in Ullyses (sic) Richards Nominees and $67,000 equity in another company. Mr Richards reiterated that he had virtually no assets and although he had hoped to pay his creditors by marketing products for the Blind Institute through the ANZ/Visa operations, this had not worked out."

Matters at the meeting then proceeded, Mr Anthony expressing his view that "more information was needed to

I shall not go into detail about the further course

of the meeting, save to say that a Mr English moved, and Mr

-6- Anthony seconded, a motion that the debtor present his own petition within seven days. That motion was lost and in the

event the motion accepting the composition was passed.

It appears to me that the debtor's answers at the meeting were unsatisfactory and that the apparent decline in

the debtor's assets was something that should have been

further investigated before a resolution accepting a

In these circumstances, my view is that the case is one where, considered as a whole, the composition ought to be set aside and that, to adopt the words of Toohey J. in Re

Doukidis Ex parte Consolidated Constructions Pty Ltd (Unreported 26 June 1985) :-

"A greater opportunity to enquire into (the debtor's) affairs and a more comprehensive explanation by the debtor were called for."

I should also add that the creditors are obtaining so little from the composition that I see no harm of any consequence to them being occasioned by the making of an order

to an effect different from that resolved upon by them at

A sequestration order against the debtor's estate was

-7- ! also sought in the application and I have power to make such

I am minded to make such an order, and now do so. I

make a sequestration order against the estate of the debtor. I order that the costs of the applicant of and incidental to these proceedings be taxed and paid in accordance with the Act. I direct that a draft of this order be delivered to the

certify thatihis andthe 6 preceding pages are a true copy of the Roessons for Judgment herein of his Honour

At a glance

Court

Decision date

Before

Source

Judgment (47 paragraphs)

Cited By (2)