FEDERAL COURT OF AUSTRALIA

Mango Boulevard Pty Ltd v Whitton; In the matter of Spencer (Bankrupt) [2011] FCA 418

THE COURT ORDERS THAT:

1.    The First Respondent, in his present capacity as trustee of the bankrupt estates of each of the Second and Third Respondents, is directed not to hold a meeting of their respective creditors under s 73 of the Bankruptcy Act 1966 (Cth) until not earlier than the hearing and determination of the First and Second Applicants’ application herein and subject to such further order as the Court may make in respect of that application.

2.    The First and Second Applicants are to pay the Respondents costs of and incidental to the application for the transfer of the proceeding.

3.    The costs of and incidental to the First Respondent’s application for directions are reserved.

4.    Liberty to apply is reserved.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    A feature of this case is that Mr Richard Spencer and Ms Silvana Perovich, respectively the Second and Third Respondents, are each content for the present to remain bankrupts even though, until less than a week before 14 November 2010, they each might otherwise have expected to have been discharged from bankruptcy by operation of s 149(2) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act) on that date. Unusual though such contentment with that status and the stigma, restrictions and obligations associated with bankruptcy may be, there is, as will be seen, reason for it.

2    Mr Spencer and Ms Perovich became bankrupts on 24 and 20 August 2007 respectively, in each case as a result of the making of a sequestration order by the Federal Magistrates Court. They each filed their statement of affairs on 14 November 2007. Three years from then, in the absence of objection by their trustee in bankruptcy, each would have been discharged from bankruptcy by virtue of the operation of s 149(2) of the Bankruptcy Act.

3    Until 5 November 2010 the office of trustee of the bankrupt estates of each of Mr Spencer and Ms Perovich was held by Mr Sweeney and Mr van der Velde. Though they had expressly turned their minds to the subject, they had no objection to the discharge of Mr Spencer and Ms Perovich from bankruptcy by effluction of time from the filing of their respective statements of affairs pursuant to s 149(2) of the Bankruptcy Act. On that day, at meetings of the bankrupts’ creditors, a resolution was passed removing Mr Sweeney and Mr van der Velde from the office of trustee of each bankrupt estate, and in their place, appointing the First Respondent, Mr Whitton.

4    In this proceeding, Mr Whitton’s solicitors are James Conomos Lawyers. That firm previously acted for Mr Spencer in the Federal Magistrates Court proceeding which resulted in the making of the sequestration order against his estate. The firm also acted for Ms Perovich in the proceeding in that court, which resulted in the making of the sequestration order against her estate, and in a subsequent appeal by her to this Court against that order. That same firm acted for each of them in earlier Federal Magistrates Court proceedings respectively brought by them in which each sought, unsuccessfully, to set aside a bankruptcy notice. Yet further, that firm has acted for Ms Perovich in the Queensland Supreme Court proceeding 1999 of 2006, described below.

5    Mr Conomos, the principal of the firm, is a creditor of the bankrupt estates of both Mr Spencer and Ms Perovich. He was a participant at the meeting of creditors in October 2010 which considered the removal resolution and, by his proxy, Mr O’Grady, seconded the motion put to the adjourned meeting on 5 November 2010 that Mr Sweeney and Mr van der Velde be removed and replaced as trustee by Mr Whitton.

6    On 5 August 2008, at meetings held that day, an earlier endeavour to remove Mr Sweeney and Mr van der Velde from the office of trustee of each bankrupt estate and appoint Mr Whitton in their place failed to command the support of a majority of creditors.

7    On and from his appointment, Mr Whitton was aware that his predecessors in office had, as a matter of deliberate value judgment the reasons for which were detailed in their report to creditors, decided not to object to discharge. They considered that so to do would not be of benefit to either bankrupt estate. Mr Whitton nonetheless decided to lodge an objection to the discharge from bankruptcy of Mr Spencer and Ms Perovich. He did that on 12 November 2010. The basis for each objection was given as a failure on the part of each to provide details of their income to their trustee. Mr Whitton gave the following further explanation in a report to creditors dated 21 February 2011:

In the short period of time I had available to me, I had to make a decision having regard to the interests of creditors as a whole. I was also aware that prior to my appointment, the bankrupts had made a proposal for composition with their then Trustees but that composition had been withdrawn. I understood from the bankrupts that they intended to make a further composition.

8    The reference in this extract of Mr Whitton’s report to creditors to a proposal for a composition is a reference to a composition pursuant to s 73 of the Bankruptcy Act. That section provides:

73    Composition or arrangement

(1)    Where a bankrupt desires to make a proposal to his or her creditors for:

(a)    a composition in satisfaction of his or her debts; or

(b)    a scheme of arrangement of his or her affairs;

he or she may lodge with the trustee a proposal in writing signed by him or her setting out the terms of the proposed composition or scheme of arrangement and particulars of any sureties or securities forming part of the proposal.

(1A)    The trustee must, within 2 working days after receiving the proposal, give a copy of the proposal to the Official Receiver.

Penalty:    5 penalty units.

Note:    See also section 277B (about infringement notices).

(1B)    For the purposes of subsection (1A), a working day is a day that is not a Saturday, Sunday or public holiday in the place in which the bankrupt resides.

(1C)    Subsection (1A) is an offence of strict liability.

Note:    For strict liability, see section 6.1 of the Criminal Code.

(2)    The trustee shall call a meeting of creditors and shall send to each creditor before the meeting a copy of the proposal accompanied by a report on it.

(2A)    The report must indicate whether the proposal would benefit the bankrupt’s creditors generally.

(2AA)    The report must name each creditor who was identified as a related entity of the bankrupt in the bankrupt’s statement of affairs.

(2B)    The trustee may refuse to call the meeting if the proposal does not make adequate provision for payment to the trustee of accrued fees that:

(a)    are owing to the trustee (at the time the proposal is lodged) in respect of the administration of the bankrupt’s estate, but are not able to be taken out of the bankrupt’s estate; and

(b)    have been approved by the creditors before the proposal is considered.

(3)    The bankrupt may, at the meeting, amend the terms of his or her proposal, but not in a way that reduces any provision for payment to the trustee of fees referred to in subsection (2B).

(4)    The creditors may, by special resolution, accept the proposal.

(5)    A creditor who has proved his or her debt may assent to or dissent from the proposal by written notice to that effect delivered to the trustee before the meeting or sent by post to the trustee and received by him or her before the meeting, and in that case the creditor shall, for the purposes of this Division, be deemed to have been present at the meeting and to have voted according to his or her assent or dissent.

9    Upon the passing of a special resolution at a meeting of creditors of a bankrupt under subs 73(4), the bankruptcy is annulled, by force of s 74(5), on the date on which the special resolution is passed.

10    As to the previous attempt by Mr Spencer and Ms Perovich each to put a composition proposal to their creditors, referred to by Mr Whitton in his explanation, the evidence establishes that, in the latter half of 2010 and prior to 19 October 2010, Mr Spencer lodged with his then trustees in bankruptcy, Mr Sweeney and Mr van der Velde, a draft proposal and sought their comments upon it, though nothing subsequently came of this. As for Ms Perovich, she lodged a formal proposal for a composition under s 73 with her then trustees on 25 September 2010. This was withdrawn by her on 14 October 2010 with her only explanation for this course being that she intended to resubmit it, on substantially similar terms, to a new trustee of her bankrupt estate. In this explanation one finds the genesis of the course of action which came to fruition on 5 November 2010 in the removal of Mr Sweeney and Mr van der Velde and the appointment of Mr Whitton in their place.

11    Notwithstanding Ms Perovich’s withdrawal of the proposal, Mr Sweeney and Mr van der Velde made comment upon it in a report which they prepared for creditors for the purposes of the meeting which, as adjourned to 5 November 2010, led to their removal and replacement. I have read the comments which they made with respect to that proposal. They are lengthy, detailed and searching. To set them out in full would add unnecessarily to the length of these reasons for judgment. Suffice it to say, the comments place a series of what strike me as reasonable and considered interrogative notes about the represented worth of that proposal. The fresh composition proposal by her is substantially similar to the former.

12    Neither Mr Spencer nor Ms Perovich has challenged Mr Whitton’s objection to their discharge from bankruptcy. The inference to be drawn is that each again wishes to have the opportunity, which would be denied to them were they discharged, of securing by the operation of s 74(5) of the Bankruptcy Act upon the vote of their creditors, the annulment of their respective bankruptcies.

13    The Applicants in the substantive proceeding, Mango Boulevard Pty Ltd (ACN 101 544 601) and BMD Holdings Pty Limited (ACN 010 093 349) (collectively, “Mango”), each creditors of Mr Spencer and Ms Perovich, do take umbrage with Mr Whitton’s objection to their discharge from bankruptcy. They have applied to the Court for an order pursuant to s 178 of the Bankruptcy Act setting aside Mr Whitton’s decisions to object and, further or alternatively, for the setting aside of the related notices of objection to discharge. They have further sought the setting aside of the resolutions by which Mr Sweeney and Mr van der Velde were removed from the office of trustee and Mr Whitton appointed in their place. A consequential order which is sought is a declaration that each of Mr Spencer and Ms Perovich was discharged from bankruptcy by virtue of the operation of s 149(2) of the Bankruptcy Act on 14 November 2010.

14    The substantive proceeding was instituted in the Court’s Victorian District Registry. Mr Whitton sought its transfer to the Queensland District Registry. Mango originally objected to this transfer but that objection was belatedly withdrawn. On 29 March 2011 Gordon J ordered that the proceeding be transferred. There remains to be resolved a question in respect of costs incurred by the other parties in respect of the transfer application, pending the withdrawal of Mango’s objection to the transfer. I deal with that subject at the conclusion of these reasons.

15    The substantive proceeding has yet to be heard. Prior to its transfer, it had reached the stage where an amended statement of claim and amended defences had been filed and served.

16    A sequel to the transfer of the substantive proceeding to the Queensland District Registry was a need to hear and determine, as a matter of urgency, an interlocutory application brought by Mr Whitton. That application came on before me in my capacity as duty judge.

17    The occasion for the urgency attending Mr Whitton’s application lay in the apparently imperative language of s 73(2) of the Bankruptcy Act (set out above). Though there are no funds in either bankrupt estate, Mr Whitton has been provided, via the bankrupts’ solicitors, “Delta Law”, with assurance to his satisfaction of payment of the costs of calling a meeting of creditors to consider the compositions proposed by Mr Spencer and Ms Perovich. He is being pressed by those solicitors to call that meeting. In these circumstances, Mr Whitton has applied, pursuant to s 134(4) of the Bankruptcy Act, for direction as to whether he must now call a meeting of the creditors of each bankrupt estate or, before so doing, await the determination of the substantive proceeding.

18    It was put on behalf of Mr Whitton, with the express support of Mr Spencer and Ms Perovich, and not contested by Mango that the Court has power in the circumstances, to give him directions as to whether to hold the creditors’ meeting. I agree. The present is “a matter arising in connexion with the administration of the estate” of each of Mr Spencer and Ms Perovich and so falls squarely within the terms of s134(4) of the Bankruptcy Act. Subsection 134(4) expressly empowers a trustee to apply to the court for directions in such matters, and inferentially, empowers the Court to give such directions. The matter is not one which relates primarily to the determination of which of competing courses of conduct is the most prudent or commercially astute and so is not outside the realm of circumstances where it is appropriate for the Court to give directions, q.v. Ansett Australia Ground Staff Superannuation Plan Pty Ltd v Ansett Australia Ltd (2004) 49 ACSR 1 at [71]. The then British equivalent of that subsection was regarded as supplying just such power in an analogous situation in In re J Burn Ex parte E N de V Dawson, H T McClennan, and The Trustee [1932] 1 Ch 247 at 257, 258. Indeed, having regard to the breadth of power conferred on the Court in the exercise of its jurisdiction in bankruptcy by s 30 of the Bankruptcy Act, it may well be that s 134(4) declares a position which would prevail in any event. Materially, s 30(1) of that Act provides that the Court:

(a)    has full power to decide all questions, whether of law or of fact, in any case of bankruptcy or any matter under Part IX, X or XI coming within the cognizance of the Court; and

(b)    may make such orders (including declaratory orders and orders granting injunctions or other equitable remedies) as the Court considers necessary for the purposes of carrying out or giving effect to this Act in any such case or matter.

19    On the hearing of his application for direction, Mr Whitton highlighted what he saw as factors for and against the holding forthwith of a meeting of creditors to consider the proposed composition (of which more below). Taking these into account, he submitted that the appropriate direction was one which sanctioned his proceeding to call a meeting of creditors forthwith upon the completion of the report concerning the proposed composition, which s 73(2) obliges him to prepare. A number of creditors who responded to a circular published by Mr Whitton notifying the contingency of the holding of a meeting to consider the composition proposals favoured the holding of such a meeting. The bankrupts also favoured that course. Mango opposed that course, contending that the holding of the meeting should await the hearing and determination of the substantive proceeding.

20    Some matters of law touching upon the construction of s 73 of the Bankruptcy Act and the powers possessed by the Court were not controversial as between the parties.

21    Each side accepted that, and in light of the judgment of the Full Court in Quinn v Official Trustee in Bankruptcy (1996) 63 FCR 136 (Quinn v Official Trustee), the position is that, if discharged from bankruptcy, neither Mr Spencer nor Ms Perovich would be able to take advantage of the ability of seeking the annulment of their bankruptcy pursuant to s 73 of the Bankruptcy Act. Upon discharge they would not be “bankrupts” for the purposes of that section.

22    That the bankrupts have secured the payment of their trustee’s costs in respect of the calling of the meeting of their creditors removes one basis upon which a trustee may refuse to call a meeting. Section 73A of the Bankruptcy Act, which provides that basis and which reverses the position which previously prevailed, qv Re Bendel; Ex parte Bendel and Others v Pattison (1997) 80 FCR 123 at 131 (Bendel), is thus not applicable in the events which have transpired in this case. Bendel remains applicable in relation to another basis upon which a trustee may decline to call a creditor’s meeting at a time requested by a bankrupt. Providing he acts in good faith, a trustee is, as Heerey J observed (at 131) in Bendel, entitled not to call a meeting, “until further investigation could be carried out so that he could make the report required by s 73(2)”; see also to like effect Wenkart v Pantzer (2003) 1 ABC (NS) 236 at [23] to [26] per Beaumont J.

23    I was informed, without objection, at the hearing by Mr Whitton’s counsel that Mr Whitton expected to complete his investigation and related report within four to six weeks. Mr Whitton’s application for direction is predicated upon the assumption that, thereafter, subject only to considerations arising from the challenge made by Mango in the substantive proceeding, he would be in a position to call the requested meeting. Strictly, a meeting must be called in respect of Mr Spencer’s proposal and another, this time of her creditors, in respect of that of Ms Perovich. It is convenient though hereafter to use the singular when referring to the calling of such meetings for the purposes of s 73.

24    It is no part of my task in deciding Mr Whitton’s application for direction to determine the adequacy of the composition which Mr Spencer and Ms Perovich each propose. If, in the circumstances, the meeting is to be held, that subject is, in the first instance, one for their creditors to determine and one for the Court only in the event of an application for the setting aside of the composition under s 222, as applied by s 76B of the Bankruptcy Act. Nonetheless, it is desirable to make brief reference to what each proposes.

25    The essence of Mr Spencer’s proposal is found in clause 2 of his “Proposal for Composition” (“composition proposal”) dated 11 February 2011. By that he records that Mio Art Pty Ltd has agreed to pay on his behalf to the Composition Trustee (nominated as Mr Whitton), for the purpose of the proposal, “in respect of the asset described below arising from the Mango Hill joint venture between myself as trustee of the Spencer Family Trust and Sylvia Perovich on the one hand (“original shareholders”) and the BMD Group on the other hand in respect of broadacres at Mango Hill (known as “Capestone Estate”), an amount equal to up to 10% of the success fees in the Perovich composition arising in the Arbitration Actions described below”. In the composition proposal the term, “the Arbitration Actions” is described as, “The original shareholders have due to them from BMD a large sum in the nature of a receivable for BMD’s entry into the joint venture which is the subject of a land valuation determination. This is governed by the Share Sale Agreement.”

26    For her part, Ms Perovich’s composition proposal, also dated 11 February 2011, puts forward (clause 2) that:

I will pay to the Composition Trustee [also Mr Whitton] for the purpose of this proposal, from the sources described below arising from the Mango Hill joint venture between myself and Richard William Spencer as trustee of the Spencer Family Trust on the one hand (“original shareholders”) and the BMD Group on the other hand in respect of broadacres at Mango Hill (known as “Capestone Estate”) up to the whole of the proceeds viz 100% of both the Arbitration Actions and the Consultancy Services Agreement Asset and up to the whole of a part viz 70% of the Shareholders Deed Dividend (less costs of the success fee) (“the Composition Sum”).

27    In Ms Perovich’s composition proposal, “the Arbitration Actions” is defined in a like way to Mr Spencer’s proposal. The “Shareholders Deed Dividend” is defined in this way, “Perovich as an original shareholder holds shares in the Mango Hill joint venture incorporated entity Kinsella Heights Developments Pty Ltd. Those shares have a dividend entitlement”. The term, “consultancy Services Agreement Asset” is described thus, “In respect of work carried out by through their company there was due from BMD a royalty line based on sales of land at Capestone Estate, Mango Hill.”

28    Though not defined in either composition proposal, it is clear from the explanatory memorandum which accompanies each that the “BMD Group” is a collective term in each proposal for the companies that, for the purposes of this judgment, I have collectively termed, “Mango”, ie Mango Boulevard Pty Ltd and BMD Holdings Pty Limited. For present purposes, relevant further detail as to the proposals is provided by the explanatory memorandum which accompanies that of Ms Perovich. Under the headings “Objective” and “Process” and “Means” it is there stated:

Objective

To achieve payment of substance to creditors by pursuing the rights of the estates under the Mango Hill broadacres joint venture agreements in particular the Share Sale Agreement and the Shareholders Deed expeditiously by entering into an agreement with Mio Art Pty Ltd as trustee of the Spencer Family Trust and its litigation funder to pursue the arbitration process outline in the Share Sale Agreement and other litigation for the benefit of the creditors in the estates of Silvana Perovich and Richard William Spencer.

Process

The Spencer Family Trust through its trustee Mio Art Pty Ltd (“Mio Art”) is prepared to work with Silvana Perovich and Richard Spencer to pursue rights and payments due from Mango Boulevard Pty Ltd and BMD Holdings Pty Ltd under the Share Sale Agreement and other joint venture agreements.

The current position is that there has been a valuation completed by Mio Art as well as facilitation of current litigation.

Means

Mio Art and its litigation funder will, on the basis of Mio Arts as principal litigant and prosecutor of interests, fund and facilitate the funding of the whole of the following matters required to pursue the interests of the estates viz:

In respect of the Arbitration Actions:

    preparation of further valuation material in respect of the Mango Hill property in compliance with the provisions of the Share Sale Agreement

    including any additional consultant expert reports necessary in support

    if necessary prosecution of an application to enforce the mandatory mediation and arbitration provisions of the Share Sale Agreement

    prosecution of the mediation and arbitration processes of the Share Sale Agreement

    any other legal action(s) necessary to enforce rights associated with the Mango Hill broadacres joint venture agreements

In respect of the Shareholders Deed Dividend:

    defence and prosecution of BS1999 of 2006 covering the interests of all of Mio Art, Spencer and Perovich

    any necessary further proceedings for the furtherance of the interests of all of Mio Art, Spencer and Perovich

In respect of the Consultancy Services Agreement Asset:

    any steps appropriate in consultation with the Composition Trustee to provide this asset for the Composition Sum.

Mio Art will fund and/or facilitate these means in toto in conjunction with a litigation funder (subject to the retention of lawyers and consultant on terms and conditions suitable to Mio Art, Perovich and Spencer) in return for payment of success fees from the estate of Perovich for its work, risk and costs. The estates and their creditors will not be required to provide any funding towards the litigation or professional fees, success fees and costs at any time; same will be the reasonability of Mio Art at all times.

29    Appended to each proposal is a detailed table which sets out prospective returns to creditors based on a number of scenarios according to the value of the Capestone Estate land, the proceeds from the Share Sale Agreement and the “Success Fee”.

30    Further detail as to the agreements and litigation referred to in the two composition proposals is provided by Mr Whitton in his affidavit of 2 March 2011. He there states:

8.    A substantial part of the bankrupts’ affairs involved the development of a property located at Mango Hill on the outskirts of northern Brisbane in the Pine Rivers Shire comprising approximately 239 hectares of vacant land.

9.    A company called Kinsella Heights Developments Pty Ltd A.C.N. 100 373 368 was incorporated as the vehicle to own the Mango Hill land. …

10.    On or about 4 July 2003, a number of agreements were entered into concerning the development of the Mango Hill land including:

(a)    A share sale agreement between [Mr Spencer] as trustee for the Spencer Family Trust, [Mr Perovich] and Mango Boulevard Pty Ltd …

(b)    A shareholders’ deed between [Mr Spencer] as trustee for the Spencer Family Trust, [Ms Perovich], Mango Boulevard Pty Ltd … and Kinsella Heights Developments Pty Ltd …

(c)    A deed of guarantee and indemnity between BMD Holdings Pty Ltd, [Mr Spencer] as trustee for the Spencer Family Trust, [Ms Perovich] and Neolido Holdings Pty Ltd. …

11.    …

12.    … Kinsella Heights Developments Pty Ltd [is], the registered owner of the Mango Hill land. …

13.    Until the share sale agreement was entered into on 4 July 2003, [Mr Spencer] as trustee for the Spencer Family Trust and [Ms Perovich] owned all the shares in the Kinsella Heights Development Pty Ltd ….

14.    By the share sale agreement dated 4 July 2003, [Mr Spencer] as trustee for the Spencer Family Trust and [Ms Perovich] each sold 50% of their shares in Kinsella Heights Developments Pty Ltd … to Mango Boulevard Pty Ltd. …

15.    The purchase price for the shares under the share sale agreement by Mango Boulevard Pty Ltd … is described in clause 4.1 thereof as:

“The purchase price of the Shares shall be calculated as the greater of:

(a)    the difference between the purchase price of the Property set out in the Contract and the improved market value of the Property immediately after the Effective Date less $2,000,000.00; or

(b)    $5,000,000.00,

which purchase price shall be reduced by …”

16.    There is presently a dispute as to what amount if any is payable for the purchase price under the share sale agreement.

17.    A valuation of the Mango Hill land has been obtained by Mio Art Pty Ltd (now the trustee of the Spencer Family Trust) from TSA Property Valuers & Consultants as at November 2007, which values the Mango Hill land at between $155 million (excluding GST) and $186 million (excluding GST) depending on the valuation methodology. …

18.    The valuation by TSA Property Valuers & Consultants is not accepted by Mango Boulevard Pty Ltd ….

19.    Clause 8 of the share sale agreement regulates how the dispute will be resolved, namely by mediation or, failing successful mediation, then by arbitration.

20.    After the share sale agreement, 50% of the shares in Kinsella Heights Developments Pty Ltd … are held by Mango Boulevard Pty Ltd … and 50% are held by:

(a)    the Spencer Family Trust as to 25% (Mio Art Pty Ltd is trustee in lieu of [Mr Spencer]); and

(b)    [Ms Perovich] as to 25%.

21.    To regulate the relationship between the shareholders, a shareholders deed was entered into on or about the same day.

22.    Since 2006, there has existed a dispute between Mango Boulevard Pty Ltd … on the one hand and [Mr Spencer] and [Ms Perovich], their [bankrupt] estates and the Spencer Family Trust on the other. That dispute has manifested itself in Supreme Court of Queensland proceedings numbered BS1999/2006. In those proceedings, Mango Boulevard Pty Ltd … is represented by Minter Ellison out of their Brisbane office. …

31    Another proceeding in the Supreme Court of Queensland should be noted. On 1 March 2011, Mio Art commenced a proceeding (1714/2011) against Mango Boulevard Pty Ltd, BMD Holdings Pty Limited, Mr Whitton and Ms Perovich seeking, inter alia, an order which would require Mango Boulevard Pty Ltd to submit to the dispute resolution mechanism in the Share Sale Agreement. Mango Boulevard Pty Ltd and BMD Holdings Pty Limited filed defences in that proceeding on 29 March 2011.

32    In terms of whether a creditors’ meeting should now be held, much was made in submissions on behalf of Mango as to the relatively recent assumption of office by Mr Whitton and related accession to files in connection with the administration of each bankrupt estate and of the need, arising from the composition proposals, to analyse agreements, valuations and complex litigation. All of this was directed to the end of highlighting that one might expect that considerable work was entailed in the preparation of a report by him in respect of the proposals for the purposes of a creditors’ meeting. That, in itself, it was submitted was why a meeting could not presently be held, the need to investigate and report being a legitimate basis for the postponing of the holding of such a meeting. So much may be accepted. Indeed, it was common ground that, having regard to the authorities mentioned above, a trustee was entitled to postpone the holding of a s 73 meeting of creditors pending the undertaking by a trustee of investigations and the related consequential preparation of a report. The need for the same was appreciated by Mr Whitton, and as I understood it, taken up in the estimate which his counsel gave that it would be some four to six weeks before a report could be prepared.

33    What remained in terms of the reasons put forward by Mango as to why, after completing his report, Mr Whitton should not then proceed to call the creditors’ meeting are considerations flowing from the existence of and basis for the substantive proceeding. Two considerations are put forward:

(a)    a risk that, if the creditors accept the composition proposals, the consequential annulment, per force of statute, of the respective bankruptcies of Mr Spencer and Ms Perovich will deprive Mango of any ability further to prosecute the substantive proceeding as there would no longer be any relevant bankruptcies; and

(b)    the contingency of further litigation arising from a need on the part of Mango, in the event of the passage of a resolution for acceptance at the creditors’ meeting, to consider the making of an application under s 76B of the Bankruptcy Act to set aside those resolutions and to seek related interlocutory relief as to the implementation of the compositions.

34    This submission was predicated upon the proposition that, notwithstanding the language of s 73(2) of the Bankruptcy Act, the Court was empowered to direct when the meeting was to be held.

35    Section 73 of the Bankruptcy Act does not, in terms, specify when a creditors’ meeting is to be held, only that, following the lodgement of the composition or, as the case may be, scheme of arrangement proposed with the trustee, that person “shall call a meeting of creditors”. Some bases upon which a trustee may decline to call a meeting or postpone its calling have been noted already – absence of provision for the costs of calling the meeting and a need to conduct investigations for the purpose of preparing a report on the proposal for the meeting. In Arcuri v Jones; in the matter of Arcuri [2003] FCA 68 Lindgren J, at [19], allowed that the Court had a discretion as to whether to order a trustee to call a meeting of creditors which would be a futility. His Honour also considered that a meeting need not be called where a composition proposal was not bona fide. In the present case, no party submitted that this expression of opinion by Lindgren J as to the existence of a discretion in the circumstances described by his Honour should not be followed.

36    In the substantive proceeding, Mango contends that the power to object to discharge, exercised by Mr Whitton as trustee, was not used for a proper purpose. More particularly, Mango alleges that objecting to discharge was not an act which:

(a)    would make Mr Spencer or Ms Perovich discharge a duty which they had not discharged; and

(b)    was not the only way for Mr Whitton to induce them to discharge any duties which they had not discharged.

37    As to the latter allegation and by way of particulars, Mango draws attention to s 139U of the Bankruptcy Act, which provides, under pain of penal sanction, that a bankrupt must, as soon as practicable, and in any event not later than 21 days, after the end of a contribution assessment period, give to his or her trustee a statement detailing his or her income together with other information. It also highlights, and the position is, that an assessment of income under s 139W of that Act can, by reasons of s 139WA, be made at any time, including after a bankrupt is discharged.

38    It is also relevant, in my opinion, to note s 153A of the Bankruptcy Act, which, by force of s 153A(1), annuls a bankruptcy if the trustee is satisfied that all the bankrupt’s debts, as defined by s 153A(6), have been paid in full, on the date on which the last such payment is made. In Quinn v Official Trustee, supra at 140, the Full Court assumed that annulment by virtue of this section could occur after the discharge of a bankrupt. I respectfully agree with that assumed position as to the construction of that section. There has never been any suggestion that either Mr Spencer or Ms Perovich might secure annulment by court order under s 154 of the Bankruptcy Act on the basis that the respective sequestration orders ought not to have been made. Thus, but for the objection to their discharge, Mr Spencer and Ms Perovich could, on and from 14 November 2010, have secured annulment only by the payment in full of their debts, as defined.

39    Different consequences attend the fate of the “property of the bankrupt” in the case of both Mr Spencer and Ms Perovich depending upon whether annulment occurs by force of s 74(5) of the Bankruptcy Act or whether, as is sought in the substantive proceedings, it is declared that they were discharged from bankruptcy on 14 November 2010. As to the former, and subject to the formal requirements described in s 74(7), those consequences are as stated in s 74(6) of the Bankruptcy Act:

(6)    Where a bankruptcy is annulled under this section, all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment shall be deemed to have been validly made or done but, subject to subsection (7), the property of the bankrupt still vested in the trustee vests in such person as the Court appoints or, in default of such an appointment, reverts to the bankrupt for all his or her estate or interest in it, on such terms and subject to such conditions (if any) as the Court orders.

Thus, subject to any Court order to the contrary and to the terms of the compositions, such annulment would, by force of statute, return to Mr Spencer and Ms Perovich what in each of their cases constituted “the property of the bankrupt” which remained vested in their trustee. On the other hand, were they discharged on 14 November 2010, “the property of the bankrupt” would remain vested in their trustee by reason of the operation of s 58 of the Bankruptcy Act. These different consequences have obvious advantages and disadvantages for both Mango, Mr Spencer and Ms Perovich in relation to each of the Supreme Court proceedings, described above.

40    The prospect that Mango may, in the event that the meetings were held and the compositions approved by the requisite majority of creditors, choose to institute a challenge under s 76B of the Bankruptcy Act is no reason to defer the holding of those meetings, if it is otherwise appropriate to hold them as soon as Mr Whitton’s report has been prepared.

41    As to the risk of annulment rendering nugatory the ability of Mango to prosecute the substantive proceeding, Mr Whitton submits that such is the breadth of power conferred on the Court by s 30 of the Bankruptcy Act that it would allow the Court to make an order setting aside his objections to discharge nunc pro tunc. This, it is said, would render the meeting under s 73(2) and any resolutions passed at the meeting ineffective. It is presumably part of that submission that there would thus be nothing upon which the annulment which occurs per force of statute, s 74(5), could operate. Both he and Mr Spencer and Ms Perovich emphasise the desirability of consigning the question of whether to accept the composition proposals to the value judgment of creditors.

42    The power conferred on the Court by s 30 of the Bankruptcy Act does not extend to the backdating of an order where that would be contrary to an express provision of that Act: Clyne v Deputy Commissioner of Taxation (1984) 154 CLR 589 at 597-598; Vale v Sutherland (2009) 237 CLR 638 at [19]. Here, though s 74(5) of the Bankruptcy Act expressly provides when annulment occurs, the operation of that sub-section is dependent upon the passing of a resolution at a meeting of the creditors of the bankrupt. If, at the time of that meeting, the person concerned were not a bankrupt, the sub-section could have no effect. Even assuming therefore that it may be possible, having regard to s 30, to set aside the objections to discharge nunc pro tunc, it does not follow that the meeting should be held before the hearing and determination of the substantive proceeding. Were the meeting held and a resolution for annulment passed, third parties may come to deal with either or each of Mr Spencer and Ms Perovich on the strength of that apparent annulment.

43    Further, Mango has, in my opinion, raised a serious question to be tried in the substantive proceeding. It was put against Mango that this was a “weak” basis on which to defer the holding of the creditors’ meeting. With respect, I disagree. The Bankruptcy Act provides an incentive, in terms of being able to secure annulment without payment in full of his or her debts with interest and the costs of administration, for a bankrupt to make an arrangement or secure a composition prior to the statutory discharge date. Section 149D of the Bankruptcy Act provides an exhaustive statement of the grounds upon which a trustee may object to discharge. Extending the period of bankruptcy so as to permit a bankrupt to make and creditors to consider a proposal for composition that the bankrupt might have put under s 73 prior to what would otherwise have been his or her date of discharge is not amongst them. And that is so no matter how much that bankrupt and some or even all creditors may wish for more time to consider and approve such a composition. In the circumstances of this case, there is, in my opinion, a serious question to be tried as to whether a desire on the part of Mr Spencer and Ms Perovich to make, and some creditors to consider, a composition, truly, was the reason for the replacement of their longstanding trustees and the new trustee’s objection to the discharge of Mr Spencer and Ms Perovich. That being so, it would not be appropriate, in my opinion, for the meeting to be held while such questions attend whether Mr Spencer and Ms Perovich remain bankrupts and, for that matter, the authority of Mr Whitton to call a meeting and to furnish a report for that purpose. Section 73 does not mandate that the meeting be held before the substantive proceeding is heard and determined. There is, in the circumstances, a real risk that the holding of a meeting before then would be an exercise in futility.

44    It was submitted that Mango might have sought an interlocutory injunction restraining the holding of the meeting and that, in any event, it had not offered any undertaking as to damages that might attend the deferring of the meeting. This, with respect, is something of a distraction. True it is that Mango might have sought such an injunction on the strength of the substantive proceeding but that does not convert the present application for direction by Mr Whitton into such an application. It is also true that Mango might nonetheless have offered such an undertaking on the hearing of Mr Whitton’s application. I accept that is a factor to consider but it was not obligatory for it so to do, much less is its absence in the circumstances of this case determinative. It is, of course, incumbent upon Mango to prosecute the substantive application with due diligence but there is, at present, every indication that it is doing this. If, in the future, there is any indication that it is not, Mr Whitton or another party could renew under the liberty to apply which I intend to reserve an application to convene the creditors’ meeting.

45    There remains for determination a question as to costs associated with that aspect of the proceeding which concerned transfer to Queensland of the substantive proceeding. Mango initially raised an objection to the transfer of the proceeding on the basis that past associations between some of the judges attached to this registry, including, and Mr Walker of its solicitors, Minter Ellison or that firm. Those associations did not rise beyond the level of professional acquaintance, in my case flowing from the chance coincidence of attendance with Mr Walker and a few hundred other judges and lawyers at an international conference on cross-border insolvency and later involvement with him about two and a half years ago on a committee responsible for the delivery of a national video-linked seminar on that same subject sponsored by the Court and the Law Council of Australia as a sequel to that conference. None of the associations could have given rise to a reasonable apprehension of bias. They were rightly not pressed by Mango. However, by the time this occurred and as their written outlines of submissions evidence, the other parties had incurred costs in preparing not just for the application for directions but also for what was initially apprehended to be an opposed application for transfer. Save for the objection voiced by Mango, the other factors attending the substantive proceeding, not the least of which is the location of each of Mr Spender and Ms Perovich, favoured its transfer to Queensland.

46    Mango should pay the costs of the other parties of and incidental to the transfer application. It has though successfully opposed the position put by the other parties as to the direction which should be given in respect of the holding of the creditors’ meeting. I shall hear from the parties as to what should, in the circumstances, be the resultant costs order in respect of Mr Whitton’s application for direction.

47    There will be a direction to the trustee and costs orders accordingly.

Associate:

Dated:    29 April 2011