FEDERAL COURT OF AUSTRALIA

Council of the New South Wales Bar Association v Eddy [2006] FCA 254

BANKRUPTCY – personal insolvency agreements – meeting of creditors and control of debtor’s property – where controlling trustee must call and hold meeting in accordance with Div 2 of Part X of the Bankruptcy Act 1966 (Cth) within certain time – whether trustee failed to comply with prescribed procedure – whether quorum at purported meeting – where time now expired – whether purported meeting a meeting for the purposes of the Act.

PRACTICE & PROCEDURE – standing – where ‘Bar Council’ not legal entity – where certain powers and functions conferred upon Council by state legislation – where costs order and judgments in favour of Council – whether Council may commence bankruptcy proceedings in its own name – whether proceedings must be brought in the names of the members.

Bankruptcy Act 1966 (Cth) ss 64N, 64Y, 82, 188, 190, 192, 194, 204, 306

Legal Profession Act 2004 (NSW) s 566

Bankruptcy Regulations 1966 (Cth) reg 10.04, 10.05

Arnold v Queensland (1987) 73 ALR 607 distinguished

Nilant v Macchia (2000) 104 FCR 238 considered

Pretorius v Dalton Carpet Tiles Pty Ltd (1984) 1 FCR 346 applied

Re Ringuet (1984) 11 FCR 45 referred to

Wentworth v NSW Bar Association (1992) 176 CLR 239 considered

COUNCIL OF THE NEW SOUTH WALES BAR ASSOCIATION v NICHOLAS JAMES EDDY, MICHAEL SAADEY ABDUL-KARIM and BRUCE VERNON DENNIS

NSD 417 OF 2006

EDMONDS J

21 MARCH 2006

SYDNEY

THE COURT DECLARES THAT:

1.         The meeting of the second respondent’s creditors purportedly held by the first respondent on 22 February 2006 was not validly convened.

THE COURT ORDERS THAT:

1.         Each party have liberty to apply on 2 days’ notice.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

THE COURT ORDERS THAT:

1.         The first respondent pay the costs of the applicant.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

Edmonds J:

Background

1                     On 17 January 2006, the second respondent, Michael Saadey Abdul-Karim (‘Mr Abdul-Karim’), signed an authority under s 188 of the Bankruptcy Act 1966 (Cth) (‘the Act’) naming and authorising the first respondent, Nicholas James Eddy (‘Mr Eddy’), as his controlling trustee under Part X of the Act.  An application by the applicant, the Council of the New South Wales Bar Association (‘the Bar Council’), to set that authority aside was rejected by me on 3 February 2006: See Council of New South Wales Bar Association v Abdul-Karim [2006] FCA 28.

2                     The effect of subs 190(1) and 194(1) of the Act is that Mr Eddy was obliged to call and hold a meeting of Mr Abdul-Karim’s creditors in accordance with Div 2 of  Part X of the Act not more than 25 working days after Mr Eddy gave his consent to be the controlling trustee on 17 January 2006.  On 15 February 2006 the Bar Council’s solicitor was informed by Mr Eddy that he did not know when the creditors’ meeting would be held:

3                     On 21 February 2006 Mr Eddy:

(a)        Informed the Bar Council’s solicitor that the creditors’ meeting would be held on 22 February 2006, that the debtor (Mr Abdul-Karim) would not be attending, and that no creditors would be attending as they had been told that he (Mr Eddy) was intending to adjourn the meeting; and

(b)        provided to the Bar Council’s solicitor a notice of meeting dated 14 February 2006 which stated he would ‘under the authority conferred on me by the Bankruptcy Act’, adjourn the meeting to 15 March 2006 and that a formal notice of meeting would be sent in due course.  (That formal notice was not received by the Bar Council until 27 February 2006.)

4                     On 22 February 2006, shortly before the creditors’ meeting was due to commence, Mr Illek, Mr Eddy’s assistant or advisor, informed the Bar Council’s solicitor that he was of the view that Mr Eddy could not adjourn the meeting, that he (Mr Illek) was going to form a quorum using a proxy, and ‘resolve to adjourn it’.

5                     At the creditor’s meeting, Mr Abdul-Karim, Mr Eddy and Mr Illek attended in person.  A proxy dated 22 February 2006 to Mr Illek, from a Mr Jack Fisher, was relied on to pass a resolution adjourning the meeting to 15 March 2006.

6                     Mr Fisher was shown as an unsecured creditor for $4,200 on account of ‘unpaid fees’ in Mr Abdul-Karim’s statement of affairs dated 16 January 2006.  On 22 February 2006 Mr Fisher signed a Statement of Claim and Proxy Form, in which he made a claim in the same amount and appointed Mr Illek as his proxy, as referred to in [4] supra.  Mr Fisher did not complete the details in either section other than printing his name and writing in the date of his signature.  Mr Fisher has produced no document supporting the assertion he is a creditor (despite a subpoena for production being served upon him).  He says he has no such documents and no documents were produced, and no other evidence has been adduced, by either Mr Eddy or Mr Abdul-Karim to support Mr Fisher’s status as a creditor of Mr Abdul-Karim.  By letter dated 2 March 2006 Mr Fisher wrote to Mr Illek withdrawing his appointment as Mr Fisher’s proxy and by letter of the same date Mr Fisher wrote to Mr Eddy withdrawing his statement of claim.

7                     By letter dated 3 March 2006, Mr Eddy, pursuant to subs 192(1)(d) of the Act, gave the Official Trustee a written request to be relieved of his duties (as controlling trustee) under Part X of the Act.  In consequence, the Official Trustee became the controlling trustee: subs 192(1)(e).

8                     On 6 March 2006, pursuant to subs 192(1)(f), Mr Abdul-Karim signed a new authority under s 188 of the Act naming the third respondent, Mr Bruce Dennis (‘Mr Dennis’), who consented to exercise the powers given by the authority and Mr Dennis thereupon became the controlling trustee: subs 192(2).

9                     At the request of Senior Counsel for the Bar Council, and with the consent of counsel for Mr Abdul-Karim, I made an order that Mr Dennis be added as a third respondent to the proceedings, and an order that there be a change to the relief sought, namely, that an order of restraint against Mr Eddy be amended to an order seeking similar restraint against Mr Dennis.

The Application

10                  The Bar Council seeks a declaration that the meeting of Mr Abdul-Karim’s creditors, purportedly held by Mr Eddy on 22 February 2006, was not validly convened; in the alternative, a declaration that that creditors’ meeting was not validly adjourned.  The Bar Council also seeks an order restraining Mr Dennis from calling a further meeting of Mr Abdul-Karim’s creditors although, in the absence of Mr Dennis obtaining an extension of time in which to do so, for which there is no application before me, I do not think he has the power to call a further meeting of those creditors.

Part X: Relevant Provisions and their application

11                  As I have indicated at [2] supra, subs 190(1) of the Act imposes a mandatory obligation on the controlling trustee to call a meeting of the debtor’s creditors.

12                  Subsection 194(1) of the Act, relevantly par (a), mandates that the meeting of the debtor’s creditors be held not more than 25 working days after the relevant consent or approval was given.  The relevant consent was given on 17 January 2006 and, having regard to week-ends and the Australia Day public holiday on 26 January 2006, it seemed to be common ground that, in the absence of time being extended – see Re Ringuet (1984) 11 FCR 45 – the last day on which the meeting could be held was Wednesday, 22 February 2006, the day on which it was purportedly held.

13                  Regulation 10.04 of the Bankruptcy Regulations mandates that the controlling trustee give to, inter alia, each creditor, at least 10 days before the first meeting of creditors is called under an authority under s 188, notice in writing of the date, time and place of the meeting, a copy of his (the controlling trustee’s) report, a copy of his (the controlling trustee’s) statement and a copy of information relating to his remuneration.

14                  The intent is clear – each creditor is to receive, in sufficient time before the meeting, the information needed to make a determination about voting – see the various voting alternatives open to creditors under subs 204(1) of the Act.  The importance of getting this information on a timely basis is manifest in the modification to subs 64Y(1) of the Act made by Part 2 of Schedule 6 of the Bankruptcy Regulations (s 196 and reg 10.05), namely –

‘(lA)     The controlling trustee may adjourn a meeting to undertake further investigation in relation to the controlling trusteeship, that the controlling trustee considers necessary.

(IB)      The creditors attending the meeting may, by special resolution, revoke the trustee’s decision to adjourn the meeting.’

In other words, the trustee’s right to adjourn is conditional upon it not being vetoed by creditors.  Of course, creditors can only exercise their veto if they are present at the meeting and here the creditors were not only not given timely notice of the meeting but the notice wrongly informed them not to attend the meeting because it would be adjourned.

15                  It is common ground that the requirements of reg 10.04 were not complied with.  Indeed, I would agree with the Bar Council’s submission that they were blatantly breached.   While I agree that the conduct complained of relates to a ‘proceeding’ (the calling of the creditors’ meeting) under the Act: See Nilant v Macchia (2000) 104 FCR 238 at [26], [27] per Hill J; at [53] per Weinberg J, having regard to the intent of the regulation as described in [14] supra, I do not agree that such conduct can be characterised as a formal defect or irregularity so as to be saved from invalidity by subs 306(1) of the Act.  In my view, the blatant breach of the requirements of the regulation would be, of itself, sufficient to grant declaratory relief in terms of the first prayer in the Bar Council’s application.

16                  There is a further consideration.  Mr Fisher’s status as a creditor of Mr Abdul-Karim is also put in issue by the Bar Council.  The Bar Council submits that on the basis of the facts set out at [6] supra, I should find that Mr Fisher is not a creditor.  There is, in my view, considerable force in this submission.  Counsel for Mr Abdul-Karim submitted that the subsequent (2 March 2006) withdrawal by Mr Fisher of his statement of claim as a creditor was no more than a concession that he did not want to vote at a meeting of creditors.  That may explain the withdrawal, on the same date, of the proxy in favour of Mr Illek, but not the withdrawal of the statement of claim.  It was also submitted that Mr Abdul-Karim would not lightly sign a statement of affairs including, as a liability, an amount which, to his knowledge, was not a liability.  To do so, it was submitted, would render Mr Abdul-Karim liable to the prospect of a penalty of imprisonment for 12 months: see subs 267(1)(f) and 267(2).  But the fact that Mr Abdul-Karim genuinely believed Mr Fisher was a creditor and, apart from his statement of affairs, there is no evidence to suggest he did so believe, while it may absolve him from the penal consequences of s 267, does not make Mr Fisher a creditor, if he was not already one.  More telling is the action of Mr Fisher in subsequently withdrawing his statement of claim.

17                  The state of evidence on this issue is less than satisfactory, however, I think it is open for me to find, and I do so find, that Mr Fisher was not a creditor of Mr Abdul-Karim on 22 February 2006.

18                  The consequence of this finding is that there was no quorum present at the meeting on 22 February 2006 – see subs 64N(2) – and the meeting should have been adjourned by Mr Eddy to a time, date and place of his fixing, but not to a date earlier than seven days nor later than 14 days from 22 February 2006: subss 64N(3) and 64N(4).

19                  It follows, in my view, that there was no meeting for the purposes of the Act on 22 February 2006.  The purported meeting-resolution adjourning the meeting to 15 March 2006 had no effect; there was no meeting at which such a resolution could have been passed.

Standing of the Applicant

20                  At a directions hearing on 6 March 2006 before Bennett J, the issue of the standing of the Bar Council was raised for the first time on behalf of Mr Abdul-Karim.  It was submitted at that hearing that the Bar Council was not an entity known to law capable, in relation to the relevant judgment debt relied upon by it in the creditors’ petition proceedings, to commence and maintain the proceedings in its name without description of the identity of the constituent members of the Bar Council.

21                  Proceedings on the creditors’ petition are currently stayed under s 189AAA of the Act, but the standing issue was raised again by counsel for Mr Abdul-Karim on the hearing of the Bar Council’s present application.  In short, it is said that the Bar Council’s lack of standing as a party bringing this application should lead to its dismissal.

22                  The different status and standing of the New South Wales Bar Association on the one hand and the Bar Council on the other was the subject of observation in the joint judgment of Deane, Dawson, Toohey and Gaudron JJ in Wentworth v NSW Bar Association (1992) 176 CLR 239 at 248:

‘The Bar Association is a company limited by guarantee.  Its articles of association provide for “a Council of the Association” [Article 45] and for its business to “be managed by the elected members of [that] Council” [Article 61].  It is that Council, constituted by its elected members, which functions as the governing body of the Bar Association and which has been referred to as “the Bar Council”.  The Bar Council has no separate legal identity but, as will later appear, it has specific statutory powers and functions in relation to barristers and candidates for admission to the Bar.’

23                  In his written submissions, counsel for Mr Abdul-Karim submitted that the New South Wales Bar Association is not an entity having the benefit of the order for costs relied upon by the Bar Council to establish standing as a creditor nor is it or does it purport to be the applicant in the present proceedings.  So much may be accepted even though the terms of the certificates certifying the orders made by the Administrative Decisions Tribunal on 17 June and 3 September 2003 which were produced by the Bar Council in response to a notice to produce might suggest that the costs orders were in favour of the Bar Association and not the Bar Council.  The first certificate reads:

‘2.        That Michael Saadey Abdul-Karim pay the costs of the Association of these proceedings in the sum of $33,300.’

The second certificate reads:

‘3.        That Michael Saadey Abdul-Karim pay the costs of the Bar Association in the sum of $98,792.’

Both certificates show the applicant as being The Council of the New South Wales Bar Association and, in my view, the reference to ‘the Association’ in order 2 of the first certificate and the reference to ‘the Bar Association’ in order 3 of the second certificate should be read as being shorthand references to The Council of the New South Wales Bar Association, in other words, the Bar Council, and not the Bar Association itself.  In any event, that is how I propose to read them.  Such a reading is consistent with the terms of subs 566(1) of the Legal Profession Act 2004 (‘the LPA’) (s 171E of the Legal Profession Act 1987 (NSW)) which provides:

(1)               The Tribunal must make orders requiring an Australian legal practitioner whom it has found to have engaged in unsatisfactory professional conduct or professional misconduct to pay costs (including costs of the Commissioner, a Council and the complainant), unless the Tribunal is satisfied that exceptional circumstances exist.’

The term ‘Council’ is defined in s 4 of the LPA to mean ‘the Bar Council or the Law Society Council’.

24                  Indeed, counsel for Mr Abdul-Karim said there was no dispute that there is a debt owing to the Bar Council.  What is disputed, he submitted, is the standing of the Bar Council to bring a proceeding in this Court as a creditor in the name of the Bar Council, rather than in the names of its identified constituent members.

25                  There is no doubt, indeed it seems to be common ground, that the Bar Council has standing under the LPA, notwithstanding it is not a legal entity separate from the Bar Association, which enables it to be the beneficiary of a Tribunal costs order.  Mr Abdul-Karim in his statement of affairs and, through his counsel, on the hearing of the present application, has conceded that he is indebted to the Bar Council for an amount in respect of such costs orders; clearly, the Bar Council is a creditor in the sum of those amounts, has obtained final judgments in respect thereof and Mr Abdul-Karim has committed acts of bankruptcy.

26                  That is enough to provide this Court with jurisdiction to make a sequestration order against the estate of Mr Abdul-Karim on a petition presented by the Bar Council: See subs 43(1) of the Act.  The fact that the Bar Council is not a separate legal entity does not deny its standing as a creditor for the purposes of the Act; cf., subs 30(1) of the Administrative Appeals Tribunal Act 1975 (Cth): Arnold v Queensland (1987) 73 ALR 607 at 611 per Wilcox J.  A partnership is not a legal entity separate from its partners and yet it may be a creditor for the purposes of the Act.  So much is implicit in subs 82(1) of the Act which provides:

‘Subject to the Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he or she may become subject before his or her discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his or her bankruptcy.’

27                  Moreover, under O 42 r 2 of the Federal Court Rules, an action by two or more persons claiming as partners who carry on business in partnership within Australia may be brought in the partnership name.  Applying the same facilitation, there seems no reason why an action by the constituent members of the Bar Council, claiming as such, may not be brought in the name of the Bar Council, particularly where the debt arises out of the performance by the Bar Council of the statutory functions and duties vested in it by the LPA.

28                  It follows that I decline to dismiss the application on the ground of the Bar Council’s standing.

29                  As the second prayer in the Bar Council’s application is expressed in the alternative to the first, and as I propose to make the declaration first sought, the second does not arise.

30                  I am not prepared to make an order in terms of the third prayer in the Bar Council’s application – an order restraining Mr Dennis from calling a further meeting of Mr Abdul-Karim’s creditors – because the 25 days prescribed by s 194 of the Act have passed and there is no application for an extension of time before me: See Pretorius v Dalton Carpet Tiles Pty Ltd (1984) 1 FCR 346 at 352 – 353.  Mr Dennis has no power to call any such meeting.

31                  Mr Eddy must pay the Bar Council’s costs of the application.

32                  I give the parties liberty to re-list the matter on two days’ notice.

Associate:

Dated:              21 March 2006