Re Beard, Kim Howard Ex parte Prestige Baking Industries Pty Ltd v Gee, Maxwell George & Anor [1980] FCA 166

CATCHWORDS

Bankruptcy - Meeting under Part X - Incorrect and material particular included in debtor's statement of affairs - The Court, being satisfied that it would be in the interests of creditors to do so,makes an order declaring Deed of Arrangement to be void.

Re : KIM HOWARD BEARD Ex parte : PRESTIGE BAKING INDUSTRIES PTY, LTD. <« Applicant

MAXWELL GEORGE GEE

and

KIM HOWARD BEARD - "Respondents.

C. A. Sweeney, J. 30 October 1980.

2 oth) a re wi es ~ 1 ad —~ A sto . 4

a aes

IN THE FEDERAL COURT OF AUSTRALIA 0. 8 of . GENERAL DIVISION SSS No. 3 pf 1980 Part xX

BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA

°

Re KIM HOWARD BEARD Ex parte : PRESTIGE BAKING INDUSTRIES PTY LIMITED - Applicant

MAXWELL GEORGE GEE

and

KIM HOWARD BEARD - Respondents

ORDER

JUDGE MAKING ORDER: C, A. Sweeney, J. DATE OF ORDER: 30 October 1980. WHERE MADE. Melbourne.

THE COURT ORDERS THAT;

1. The Court, being satisfied that the debtor has rncluded an incorrect and material particular in the statement of his affairs, and being satisfied that 1t would be in the interests of the creditors so to order, makes an order declaring the Deed of Arrangement of the debtor, made on 4 February 1980, to be votd.

2. It further orders that the debtor pay the costs of the applicant of and incidental to the application, such

costs to be taxed, if not agreed.

3. Liberty to apply 1s reserved to all parties.

IN THE FEDERAL COURT OF AUSTRALIA No 3 of 1980 Part X GENERAL DIVISION

BANKRUPTCY DITRICT OF THE STATE OF VICTORIA .

Re KIM HOWARD BLARD Ex parte <* PRESTIGE BAKING INDUSTRIES PTY. LIMITED - Applicant

MAXWELL GEORGE GEE

and

KIM HOWARD BEARD - Respondents.

REASONS FOR JUDGMEN'L

30 October 1980 C A. SWEENEY J. In this application Prestige Baking Industries

Pty Ltd (the applicant) contends that there 1s a doubt on

specific grounds whether a Deed of Arrangement entered into

between Kim Howard Beard (the debtor) and Maxwell George

Gee (the trustee) on 4 February 1980 was entered into in

accordance with Part X of the Bankruptcy Act 1966 (the Act).

The specific grounds upon which the applicant relies are -

(a) the creditors determined the amount of the applicant's debt and not the chairman of the

meeting as required by s 201 of the Act,

(b) 1f the chairman determined the amount oJthe applicant's debt, he wrongly determined 1t at $1,500 instead of the correct figure

of $8,520.13,

(c) the chairman "failed to act in a summary

manner on the best anformation he could

gather at the meeting."

The applicant seeks an order under s.222(1) of the Act declaring that the deed is void on those grounds. He also seeks to attack the resolution that the debtor enter into the Deed of Arrangement on the ground that the creditors at the meeting, other than the applicant, conducted themselves

unfairly towards the applicant at the meeting

In answer to this portion of the applicant's claim the debtor relies on the Chairman's Certificate dated 8 February 1980 as conclusive evidence that a special resolution was duly passed at the meeting of creditors in

*

the following terms

"That the debtor execute a Deed of Arrangement which shall contain the provisions contained in the draft Deed produced to the Meeting."

I am satisfied that the chairman of the mevting determined the amount of the applicant's debt at $1,500. In my opinion, having regard to the reasons given and the

authorities cited in Re Blake ex parte Kebroc Home Developments

Pty Ltd (an liquidation) and Citicorp Australia Limited

(22 May 1950), the certificate of the chairman, 15, by reason of

s 225 of the Act, conclusive evidence that the resolution specified

/3

3. in the certificate was duly passed at the mecting and affords a complete answer to that portion of the application based on s.221(f) of the Act. That certificate was signed on 8 February 1980 and was thus not affected br the amendrent made by s.122 of the Bankruptcy Amendment Aet 1980, in relation to certificates signed after 8 April 1980, which

are now only prima facie evidence.

The applicant further contends that the Courl should be satisfied that the debtor has included two incorrect and material particulars in his Statement of Affairs, namely, the applicant's debt at $1,500, and a debt said to be owed by the applicant to the debtor at $16,480 Accordingly he seeks an order, pursuant to s.222(4) of the Act, declaring the Deed

of Arrangerent to be void.

The debtor puts his answer to this portion of

the application in three ways -

(1) the applicant 1s not a creditor of the debtor and so has no standing to briny

the application,

(11) the debtor has not included any incorreel and material particular in his Statement of Affairs,

(111) in any event, the Court should not make an order declaring the deed to be void on this ground, as it should not he satisfied that 1t would be in the interests of the creditors to do so It was common ground between the partics that on 30 May 1979 the applicant and debtor entered into an

agreement under seal (the licence agreement), whereby,

amongst otier things, the applicant licensed the debtor io

/4

ee + cer enmermmmie Hepat sya een) -

operate and manage as a licensee of the applicant "three special stores known as Hades Hot Bread Kitchen Stores". It was claimed by the anplicant that ''due to repcated breaches"

by the debtor of his obligations under the license agreement,

c

the applicant terrinated it by written notice on 5 Noverber

On 10 January 1980, Mr. Irlicht, who appeared for the debtor on the hearing of this application, wrote a letter on behalf of the debtor to the solicitor for the applicant,

which, omitting formal parts, read as follos '-

'I refer to the Notice issued by you on behalf of your client Messrs. Prestige Baking Industries Pty. Ltd. to Mr. Kim Howard Beard for enom I act.

On my instructions it appears that my client entered into the agreement in question as a result of a number of misrepresentations made by your clients. The misrepresentations concern the figures of the business and the state of the repair of the machinery and consequently my client rescinds the agreement.

Alternatively, 1t 1s contended that no circumstances have arisen whereby your client

was entitled to terminate tue licence arreement and consequently my client accepts your client's purported rescission of the licence agreement

as repudiation of the contract between the parties. It 1s contended that in any event your client is not entitled to forfeit monies paid with respect to the licence agreement.

In any event it transpires that at lease (sic) with respect to one of the premises usntch (210) respect to which s licence agreement was granted, evidently there was no right bv vour ciicnt to grant a licence of the terms of the lease under which 1t was holding,

In addition to the above eclains, mv client claims security deposit which bas pveen "aid to your client as well as value of the stock whici has keen left an the premises by ry client.

In view of the above facts, unless within 14 days from this date, I receive repayment of the monies paid by my clrent to your client, together with

an indication of your client's willingness to compensate my client for the damages he has sufiered, my instructions are to institute legal proceedings against your client without any further notice.

Could you please advise me, whether you have instructions to accept service of proceedings "

Apart from an appearance by Mr. Irlicht tor him at a preliminary stage of the case, the trustee took no further part in the proceedings and Mr Irlicht stated that he submitted to any order made by the Court.

On the hearing of this application, Mr Irlaicht conceded that, as a matter of arithretic, the applicant's claim under the licence agreement, if 1t were well founded, amounted to $8,500, but, 1n his client's notice of opposition,

stated the following grounds +

"1. The debtor denies that the applicant Prestige Baking Industries Pty. ltd 1s his creditor and consequently denies its right to bring this application. Any liability which may have otherwise been incurred by the said debtor Lo the applicant was incurred pursuant to a contract which was induced by the applicant's fraud or alternatively that of ils agent and which contract the debtor being entitled to do so has rescinded, or alternatively the debtor 1s entitled to amounts of set-offs which extinguish the amount which otherwise may be owing to the applicant.

PARTICULARS

(a) One John Walker of International Franchising, as agent for the applicant falsely and fraudulently or alternatively recklessly represented to the debtor that the takings profits and outgoings of a business consisting of hot bread kitchens in Ringwood, Eastland and Old Orchard were as set out in a piece of paper which he gave to the debtor The debtor refers to his Affidavit sworn on 14th March, 1980.

(bo) Further or alternatively, the debtor 1s entitled to damages against the applicant for fraud which 1s (sic) not less than the amount which would otherwise be owing to the applicant

./6

6.

(c) Further or alternatively to sub-paragraphs (a) and (b) hereof, the debtor 1s entitled to yeceive from the applicant repayment of the sum of $16,068.00 (being the sum which the debtor has paid to the applicant), or part thereof.

(d) The debtor 1s entitled to a set-off in the sum of $500.00 with respect to goods belonging to him, which have been wrongfully converted by the applicant."

In the course of his written final submissions, Mr Irlicht abandoned the claim bascd on an alleged total failure of consideration and particularised in paragraph 1(c), that the debtor was entitled to recover the price

paid by him to the applicant in respect of the licence

agreement.

The debtor, in his affidavit 1n support of his notice of opposition, stated that the agent of the applicant informed him that the takings and the profits and outgoings of the business, the subject of the proposed licence agreement, were as set out on a piece of paper which he then gave to the debtor, telling him that these were the figures obtained by the applicant, which was itself carrying on the business The document so referred to was in fact headed

"

"Licensee Trading and Profitability Forecast

The allegations of fraud were denied by the general manager of the applicant, whom I acccpt as a witness of truth Wherever his evidence conflicts with that of the applicant I have no hesitation in preferring his account of the facts The debtor has failed to establish any basis fo1

these allegations.

» The debtor also sought to base his submission

that the applicant had no standing as a creditor to bring this application upon a claim that the debtor was "entitled to amounts as set-offs which extinguish the amount which otherwise may be owing to the applicant: In addition, he alleged that he was entitled to a set-off in the sum ot $500 with respect to stocks left on the premises of the business by him, which were said to have been wrongfully

converted by the applicant.

It 1s clear that there were serious defects in the plant and machinery provided by the applicant tor the use of the debtor under the licence agreement, but on the view of the facts most favourable to the applicant, 1t could not be held that any claim which the debtor could conceivably establish for damages in respect of those defects could have been sufficient to extinguish the debt clearly owed by the debtor to the applicant, cven 1f one gave the debtor an additional credit tor the full amount

of $500 claimed in respect of the stocks left on the premises. In my opinion the applicant clearly has established its standing as a creditor of the debtor to bring this application

The applicant claimed that the debtor included two incorrect and material particulars in his Statement olf Affairs, namely, the applicant's debt at $1,500, instead of $8,520.13, and a debt owed by the applicant to the debtor at $16,480. The debtor denied these claims and contended

that, in any event, the Court should not be satisfied that

/8

1t would be in the interests of the creditors to make an order declaring the deed to be void on this fround (see

$.222(4)(a) and (5) of the Act.)

In his list of unsecured creditors, the debtor uneluded the item "Prestige Baking Industrics Pty. Ltd , $1,500, contracted in 1979" and under the heading "Nature of Debt" he stated "Disputed Claim". Under the heading "Debts Due to the Estate" there appeared two items showing the name of the applicant as the debtor, one for $480, in respect of which 1t was stated that $480 was the amount likely to be received and the other for "$16,000 plus damages", and under the heading of the amount likely to be

received there appeared the words "disputed claim".

In my opinion, the reference to the debt owed to the applicant as being a disputed claim in the amount of $1,500 was plainly incorrect. It was quite clear that the

applicant's claim against the debtor was for the sum of $8,520.13, as set out in detail in the applicant's "Final Notice" to the debtor dated 14 November, 1979 The justification pleaded for the use of the figure of $1,500 was that by a "without prejudice" letter dated 7 January 1980 to the debtor the applicant demanded payment of $1,500 and the return of certain books and records "in respect of your indebtedness to Prestige within 14 days from the date

hereof, failing which legal proceedings for recovery will be

instituted against you without further notice. The 1tem in the

1/9

Statement of Affairs relating to the applicant's claim was, 1n my opinion, an incorrect and material particular within the meaning of 222(4)(b) of the Act It was quate wrory, to treat the without prejudice offer to accept a Jower amount, which was not acted upon by the debtor, as 1t that lower

amount represented the whole of the claim oJ the applicant

The statement that the debtor had a claim against the applicant for''$16,000 plus damages" was accurate in the sense that the debtor asserted such a claim and as it was referred to as a disputed claim, I am not satisfied that 11

amounted to an incorrect particular.

The question whether the Court 1s satisfied thal It would be 1n the interests of the creditors to declare the deed to be void should be considered in the light of all the circumstances surrounding the composition The trustee informed the creditors at the meeting, at which the special reselution for the composition was passed,that Mr. Irlicht had advised the debtor that he had a ninety per cent chance of succecding in his proposed action against the applicant. It 1s clear that this claim and its chances of success bulked large in the deliberations of the creditors other than the applicant

The deed itself provided in Clause 8 as follows -

/10

"8. ther debtor will pursue any action he may have against Prestige Baking Industries Pty. Ltd. diligently and will not compromise same without consen. of the trustee to the compromise and shall pay the net proceeds of the action or the settlement thereof to the trustee for the purposes of this deed, "

The total of the debts claimed by the other creditors of the debtor was $9,402 as against the $8,520.13 claimed by the applicant to be owed to it The trustee pointed out to the meeting that the outcome of the vote would depend on the attitude of the applicant, whose debt in the sum of $8,520.13 was a disputed amount, and said that 1 would be in the best interests of the creditors if the applicant's debt were accepted in the sum of $1,500,so as to prevent the applicant from defeating the motion to require the debtor to execute the Deed of Arrangement 'lhe applicant's representative at the meeting then pointed out that the sum of $1,500 was contained in a without prejudice letter and was therefore not an open offer. Before determining the question of the amount in respect of which the applicant should be admitted to vote, the chairman took a vote of the creditors on the question, which was in favour of accepting thc applicant's debt in the sum of $1,500, and then determined to

accept it in that amount

I am satisfied that it would be in the interests of the creditors to make an order declaring the deed to be void The advice that was reported to the meeting that the debtor's

action had a ninety per cent chance of success preatly

exaggerated any prospect of success which that action could

'Jj

reasonably have ,been considered to have had. It was plainly not in the interests of the applicant to have the deed approved. Under its terms the debtor covenanted to pay to

the trustee the sum of $50 per week during the currency of

the deed, which was to be terminated on the payment by the debtor of fifty per cent of all his provable non-prioritv debts and the p®yment in full of all his priority debts including the costs of administration of the decd. The

debtor conveyed to the trustee his interests 1n household furniture valued at $400 and in a Mercury outboard motor valued at $1,925. The course which the case has taken before me, including the final abandonment by Mr Irlicht of ai least one of the grounds of the debtor's claim against the applicant as unarguable, although 1t had been lons: nersisted in, lead me to think that the pursuit by the debtor of his action against the applicant 1s unlikely to benefit his creditors

to any substantial extent

Once the deed 1s declared to be void, the parties will be free to take such steps as they may be advised. If a meeting of creditors is held under Part X, one would hope that 1t would be conducted in a more satisfactory manner than the meeting which resulted in the deed Tf one of the creditors chooses to issue a creditor's petition, that creditor and the debtor will be free to put their cases in relation to 1t as

they choose Any other creditor who wishes to intervene may seek

leave to do so,

It 1s not necessary to consider the applicant's

claim that the deed should be terminated under $.236 of the

Act

/12

12.

The Court, being satisfied that the debtor has included an incorrect and material particular in the statement of his affairs, and being satisfied that 1t would be in the interests of the creditors so to order, makes an order declaring the deed of arrangement, made on 1 February 1980, to be void It further orders that the debtor pay the costs of the applicant of and incidental to the application, such costs to be taxed, if not agreed. Iuiberty to apply 15

reserved to all parties.

bb} 30.

v CATCHWORDS

Bankruptcy - Meeting under Part X ~ Incorrect and matcrial particular included in debtor's statement of affairs - The Court, being satisfied that it would be in the interests of creditors to do so,makes an order declaring Deed of Arrangement to be void.

Re ' KIM HOWARD BEARD

Ex parte : PRESTIGE BAKING INDUSTRIES PTY, LTD. < Applicant

MAXWELL GEORGE GEE and

KIM HOWARD BEARD - Respondents.

C A Sweeney, J. 30 October 1980.

IN THE FEDERAL COURT OF AUSTRALIA No 3 of 1980 Part xX GENERAL DIVISION ne ° artes

BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA

e

Re KIM HOWARD BEARD Ex parte : PRESTIGE BAKING INDUSTRIES PTY LIMITED ~ Applicant

MAXWELL GEORGE GLE

and

KIM HOWARD BEARD -

Respondents ORDER JUDGE MAKING ORDER: C, A. Sweeney, J. . DATE OF ORDER: 30 October 1980 WHERE MADE Melbourne. THE COURT ORDERS THAT, 1. The Court, being satisfied that the debtor has included

an incorrect and material particular in the statement of his affairs, and being satisfied that 1t would be in the interests of the creditors so to order, makes an order declaring the Deed of Arrangement of the debtor, made

on 4 February 1980, to be votd.

vw

It further orders that the debtor pay the costs of the applicant of and incidental to the application, such costs to be taxed, if not agreed.

3. Liberty to apply is reserved to all parties

IN THE FEDERAL COURT OF AUSTRALIA No, 3 Of 1980 Part GENERAL DIVISION

BANKRUPTCY DITRICT OF THE STATE OF VICTORIA .

Re KIM HOWARD BARD Ex parte * PRESTIGE BAKING INDUSTRIES PTY LIMITED - Applicant

MAXWELL GEORGE GEL

and

KIM HOWARD BFARD ~ Pespondents.

REASONS FOR JUDGMFNT

30 October 1980 C 1 SKETALY J

-

In this application Prestige Baking Industrics Pty Ltd (the applicant) contends that there 15 a doubl on specific grounds whether a Deed of Arrangement entered into between Kim Howard Beard (the debtor) and Maawell George Gee (the trustee) on 4 February 1980 was entered into in accordance with Part X of the Bankruptcy Act 1966 (the ict)

The specific grounds upon whch the applicant relies are -

(a) the creditors determined the amount of the applicant's debt and not the chairman of the

meeting as required by s 201 of the Act,

2.

(b) 1t the chairman determined the amount of ® the applicant's debt, he wrongly determined it at $1,500 instead of the correct figure

of $8,520.13,

(c) the chairman "failed to act in a summary manner on the best information he could

gather at the meeting."

The applicant seeks an order under $.222(1) of the Act declaring that the deed 1S void on those grounds. He also seeks to attack the resolution that the debtor entor into the Deed of Arrangement on the ground that the creditors at the meeting, other than the applicant, conducted themsclves

unfairly towards the applicant at the meeting

In answer 1o this portion of the applicant's claim the debtor relics on the Chairman's Certificate dated 8 February 1980 as conclusive evidence that a special

resolution was duly passed at the mecting of ereditors in

the following terms

"That the debtor execute a Deed of aArrangrement which shall contain the provisions contained ain the draft Deed produced to the Meeting."

I am satisfied that the chairman of the meetings determined the arount of the applicant's debt at $1,500. In my opinion, having regard to the reasons given and the

authorities cited in Re Blake ex parte Kebroc Home Deveroprents

Pty Ltd (in liguidation) and Citicorp Australia Larited

(22 May 1920), the certificate of the cha1liman, ts, by reason ol

s 225 of the Act, conciusive evidence that the resolution specified

3. in the cerltlLicate was duly passed at the meeting and affords a complete answer to that purtion of the application based on s.221(f) of the Act. That certificate vas siened on 8 February 1980 and was thus not aflected h: the amendment made by s 122 of the Bankruptcy Amendment At 1980, in relation to certificates signed after 8 April 1980, which

are now only prima facie evidence.

The applicant further contends that the Court should be satisfied that the debtor has included two incorrect and material particulars in his Statement of Affairs, namely, the applicant's debt at $1,500, and a debt said to be owed by the applicant to the debtor at $16,480 iccordingly he seeks an order, pursuant to s.222(4) of the Act, declaring the Decd

of Arrangement to be void.

The debtor puts his answer to this portion ot the application in three ways ~

(1) the applicant 15 not a creditor of the debtor and so has no standings io bring

the application,

(12) the debtor has not included any incorreet and material particular in his Statement of Affairs,

(111) in any event, the Court should nol make an order declaring the decd to be youd on this ground, as it should not be satisfied that 1t would be in the

intcrests of the creditors to do su

It was cormron fround between the partics that on 30 May 1979 the applicant and debto1 enlered anto an agreement under seal (the licence agreement), whereby

anonest otner things, Lhe applicant licensed the debtor: to

r we

operate and manage as a licensee of the applicanl "three special stores known as Hades Not Bread Kitchen Stores". It

was claimed by the applicant that "due to reneated breaches"

by the debtor of his obligations under the license agreement, the applicant terminated 11 by written notice on 5 Noverber

1979.

On 10 January 1980, Mr. Irlicht, who appearcd for the debtor on the hearing of this application, wrote a letter on behalf of the debtor to the solicitor for the applicant,

which, omitting formal parts, read as follovs '-

'I refer to the Notice issued by vou on behalf of your client Messrs Prestige Baking Inaustric¢es Pty. Ltd. to Mr. Kim Howard Beard for whon I act.

On my instructions 1% appears that my client entered into the agreement 1n question as a result of a number of misrepresentations made by your clients. The misrepresentations concern the figures of the business ind the state of the repair of the machinery and consequent], my client rescinds the agreement.

Alternatively, it 1s contended that no circumstances have arisen woereby vour client

was entitled to terminate tuc licence agrecnont and consequently my elrent accepts your elien't's purported rescission of the licenve agreement

as repudiation of the cortract betwoen the narties It 1s contended that in any event your claunt 18 not entitled to forfeit monievs paid with vespect to the licence agreement

In any event 1t transpires that at Tease (s3¢) with respeet to one cf the premises which (vie) respect to which a licence agreement was fronted, evidently there was no right by your clicnt to grant a jicence of the terms of the tease under which 1t was holding.

ti addition to the ubove elas, mm clicnt elains security deposit which bas ween naw te your elrent as well as value a! tre stock viien aa vecn Jett zu the premises by my client

o

In view of the above facls, unless within 11 aays from this date, I receive repayment of the ironies paid by my client to your client, tofether with

an indication of your client's a1llinpness to compensate my client for the damages he has sulflered, my instructions are to institute lepal procecdings against your client without any further_noticc.

Could you please advise me, whether you have instructions to accepl service of proceedings "

Apart from an appearance by Mr. Jrlicht for him at a preliminary stage of the case, the trustee took no further part in the proceedings and Mr. Irlicht stated that he

submitted to any order made by the Court.

On the hearing of this application, Mr Irlicht conceded that, as a matter of arithretic, the applicant's claim under the licence agreement, if 1t were well tounded, amounted to $8,500, but, in his client's notice of oppesition, stated the following grounds ,-

"1 The debtor denies that the applicant Prestige Baking Industries Pty Ltd 1s his creditor and consequently denies 11s right to bring this application. Any liability whien may have otherwise been incurred by the said debtor to the applicant was incurred pursuant to a contract which was induced bv the applicant's fraud or alternatively that of 1ls agent and which contract the debtor being entitled to do so has rescinded, or alternatively the debtor 1s entitled to amounts of set-ofts which extinguish the amount which otherwise may be owing to the applicant

PARTICULARS

(a) One John Walker of Internationa] Franchising, as agent tor the applicant falsely and fraudulently or alternatively recklessly represented to the debtor that the takinys profits and outgoings of a business consisting of hot hread kitchens in Rinwood, LTastland and Old Orchard were as set out in a piece of paper which he gave to the debtor. The debtor refers to his Affidavit sworn on 14th "larch, 1980.

(b) Further or alternatively, the debtor is entitled to damages against the apnjicant for fraud ytich is (s'c) not less than the amount which would otherwise be owing to the applicant

[oe

6.

(ec) Further or alternatively to sub-parapraphs (a) and (b) hereol, the debtor is cnlitled to yeceive from the applicant repayment of the sum of $16,068.00 (being the sum which the debtor has paid to the applicant), or part thereof.

(ad) The debtor is entitled to a set-off in the

sum of $500 00 with respect to goods

belonging to him, which have been yronefull,

converted by the applicant

In the course of his written final submissions, Mr Irlicht abandoned the claim based on an alleged total failure of consideration and particularised in paragraph 1(c), that the debtor was entitled to reeyover the nrice

paid by him to the applicunt in respect of the liecnce

agreement

The debtor, in his affidavit in suppert of nis notice of opposition, stated that the agent of the applicant informed him that the takings and the profits and outgoings of the business, the subject of the proposed licence agreement, were as set out on a prece of paper which he then gave to the debtor, telling him that these were Lhe figures obtained by the applicant, which was itself carrying on the

business The document so referred to was in fact head d

"Licensee Trading and Profitability Forecast "

The allepfations of fraud were denied by the soneral manager of the applicant, whom 1 acecpt a5 a witness olf truth Wherever his cvidence contliets with that o1 tee applicant I have no hesitation in preferring has account of the facts 'The debtor has tailed to cslablish uny basis for

these allegations.

.

The debtor also sought to base his submission that the applicant had no standing as a ercditor to bring this application upon a claim that the debtor was ""cntitled to amounts as set-offs which extinguish the amount whicn otherwise may be owing to the applicant. In addition, he alleged that he was entitled to a set-off in the sum of

$500 with respect to stocks left on the premises of the business by him, which were said to have been wrongfully

converted by the applicant

It 1s clear that there were scrious defects un the plant and machinery provided by the applicant for the use of the debtor under the licence agreement, but or the view of the facts most tavourable to the applicant, 1t could not be held that any claim which the debtor could conceivably establish for damages in respect of those defects could have been sufficient to extinguish the debt clearly owcd by the debtor to the applicant, even 1f one gave the debtor an additional credit for the full amount of $500 claimed in respect of the stocks left on the premises. In my opinion the applicant cliearly has established its standing as a creditor of the debtor te brine this application

The applicant claimed that the debtor ineluded two incorrect and material particulars in his Statement of Affairs, namely, the applicant's debt at S1,5U0, instead of $8,520 13, and a debt owed by the applicant to the debtor at $16,480 lhe debtor denied these claims and contended

that, in any event, the Court shoulau not be satisfied thet

/8

1t would be in the interests of the creditors to make an order declaring the dee¢ to be void on this round (see

S 222(4)(a) and (5) of the Act )

In his list of unsecured creditors, the debtor included the item "Prestige Baking Industries Pty Ltd $1,500, contracted in 1979" and under the heading 'Nature of Debt" he statcd 'Disputed Claim" Under the heading "Debts Due to the Estate" there appeared two items showins the name of the applicant as the debtor, onc for $480, in respect of which it was stated that $480 was the amount likely to be received and the other for "$i6,000 plus damages", and under the heading of the amount likely to he

received there appeared the words "disputed claim".

In my opinion, the reference to the debt oved to the applicant as being a disputed claim in the amount of $1,500 was plainly incorrect. It was quite clear that the applicant's claim against the debtor was for the sum of $8,520.13, as set out in detail in the applicant's "Pinal Notice" to the debtor dated 14 Novemher, 1979 Ine Justification pleaded for the use of the tigure of $1,500 was that by a "without prejudice" letter dated 7 January 1980 to the debtor the applicant demanded payment of $1,500 and the return of certain books and revords "in respect of your indebtedness to Prestige within 1+ days from the date hereof, fazling which legal proceedings for recovery will be

instituted against you without further notice The item in the

9.

Statement of Affairs relating to the applicant's claim

was, 1n my Opinion, an incorrect and muterial. particular within the meaning of £22(4)(b) of the 4er It was quate wrorpn fa treat the without prejudice offer to accept a lower amount, which was not acted upon by the debtor, as 1! thal lower

amount represented the whole of the claim of the applicant

The statement that the debtor had a claim aguinst the applicant for''$16,000 plus damages" was accurate in the sense that the debtor asserted such a claim and as it was referred to as a disputed claim, I am not satisfied that 11

amcunted to an uncorrect particular

The question whether the Court 3s satisiied that It would be in the interests of the creditors to declare the deed to be void should be considered in the light of al] the circumstances surrounding the composition 'the trustee informed the creditors at the mecting, at which the special resolution for the composition was pussed,that Mr 1l2zlicht had advised the debtor that he had a ninety per eent chance of suceecdine in his proposed action against the apnlicant. It 1s clear that this claim and its chances of suceess bulked lar,e¢ in the deliberations of the creditors other than the applicant

The deed itself provided in Clause 8 as idullows -

{10

"8 thee debtor will pursue any action he may have against Prestige Baking Industries Pty Ltd daligently and will nov. compromise same without consent of the trustee to the compromise and shall pay the net proceeds of the action or the settlement thereof to the trustec for the purposes of this deed, "

The total of the debts claimed by the other creditors of the debtor was $9,402 as against the $8,520 13 @ claimed by the applicant to be owed to 11 The trustee pointed out to the meeting that the outcome ot the vote would depend on the attitude of the applicant, whose debt 1n the sum of $8,520 13 was a disputed amount and said that it would be in the best interests of the creditors if the applicant's debt were accepted in the sum ot S1,500.so as to prevent the applicant from defeating the motion to require the debtor to execute the Deed of Arrangement The applicant's representative at the meeting then pointed oul that the sum @ of $1,500 was contained in a without prejudice letter and was therefore not an open offer. Before determining, the question

of the amount in respect of which the applicant should be

admitted to vote, the chairman took a vote of the creditors on the question, which was in favour of accepting the applicant's debt tn the sum of $1,590, and then determined to

accept 1t in that amount

I am satisfied that 1t would be tn the interests of the creditors to make an order declaring the ueed to be void The advice that was reported to the meeting that the debtor's action had a ninety per cent chance of success areatly

cNvaggerated unyv prospect of success which that action could

wa

ua

ae

reasonably have been considered to have had It was plainly not in the interests of the applicant to have the deed approved. Under its terms the debtor covenanted to pay to

the trustee the sum of $50 per week during the currency of

the deed, which was to be terminated on the payment by the debtor of fifty per cent of all his provable non-prior.ity debts and the peyrent in full of all his priority debts including the costs of administration of the decd The

debtor conveyed to the trustee his interests in household furniture valued at $400 and in a Mercury outboard motor valued at $1,925. The course which the case has taken before me, including the final abandonment by Mr. Irlicht ot at least one of the grounds of the debtor's claim agaanst the applicant as unarguable, although 11 had been long persisted in, leaa me to think that the pursuit by the debtor of his action

against the applicant 1s unlikely to benefit his creditors

to any substantial extent

Once the deed 1s declared to be yo1d, the parties will be frec to take such steps as they may be advised. If a meeting of creditors is held under Part X, one would hope that 1t would be conducted in a more satisfactory manner than the meeting wnich resulted in the deed Tf one of the ereditors chooses to issuc a creditor's petition, that creditor and the debtor will be free to put their cases in retotion to 1t as

they choose Any other creditor who wish s Lo intervene mew seek

leave to do so

vi

It 1s not necessary to consider the applicant' claim that the dced should be terminated unger s.236 of the

Act

, The Court, being satisfied that the debtor has

included an incorrect and material particular in the statement of his affairs, and being satisfied that 11 would be in the interests of the creditors so to order, makes an order declaring the deed of arrangement, made on 4 February 1280,

to be void It further orders that tne debtor pay the costs of the applicant of and incidental to the application, such costs to be taxed, if not agrecd. Jiberty to apply ss

reserved to al] parties