BANKRUPTCY COURT.

New Zealand Times, Volume XXXII, Issue 5025, 2 May 1877, Page 2

BANKRUPTCY COURT.

Mondat, April 30. (Before his Honor the Chief Justice) EX PARTE POLL IN RE TONKS.

In this case Mr. Barton commenced his argument by stating what he conceived to be the result of the evidence given, and upon which, he said, very numerous legal points arose. Ho first called the attention of the Court to the two bills of sale dated 1 29th January, by which Edward Tonka transferred to Beck and Tonka all his trade assets, including his leasehold premises, to secure what apparently on the face of the deeds was an advance of £I3OB, then made for the accommodation of Edward Tonka. Mr. Barton said that although I he deeds made it appear to be a present advance, and the evidence of Mr. Samuels showed that the solicitor was so instructed, it in fact was not a present advance; and if a bona fide transaction at all, it was a transfer ef the whole of Edward Tonksl present and future trade assets to secure a past debt of £I3OB due to Beck and Tonksi By another deed, dated 31st January, 1877, Mr. Edward Tonks transferred to his mother the whole of his private property under his father's will, for £250, all of which sum was immediately paid away to certain creditors, who were thus preferred to the rest, £BO of it being paid to his solicitors, Moorhouse and Staf-

ford, after the 31st January, aud who therefore must have received that money with full knowledge that the debtor having stripped himself of all his property by the deed they themselves had prepared, would be unable to pay any other creditor a farthing. This £BO payment he (Mr. Barton) would attack as an improper preference under the Bankruptcy Act, and such as would have to be refunded, and he argued that the withdrawal of this £BO from the apparent assets of Edward Tonics would itself vitiate any resolution of the other creditors to accept ss. in the £, inasmuch as Messrs. Moorhouse and Stafford had thus received 20s. in the £ on much more than half their debt. Mr. Barton next urged to the Court that the bills of sale to Beck and Tonks were an act of bankruptcy, because they not only gave to those creditors a preference of their past debt, but also did so without giving to the debtor any additional time for payment, Mr. Barton here read a clause in both deeds, which showed that upon default being made Beck and Tonka were forthwith entitled to demand payment of both their overdue and current bills, and he stated that on the very day the deed was signed there were already four of these bills dishonored; so that at the moment Edward Tonka signed the deed he had committed such a default as would entitle Beck and Tonks to go to him and demand payment, aud unless he there and then pulled out of his pocket £I3OB, with interest, they could turn him out and seize everything. These deeds also contained a special provision, to which Mr. Barton called the particular attention of the Court, as making the whole transaction an act of bankruptcy in its inception. It provided that Mr. Edward Tonks should have in his personal possession ready to hand over when demanded from him, on his premises, in Manners-street, the whole of the £I3OB and interest ; thus compelling him to keep the money in his house, and on his person, ready to hand over to his creditor. These bills of sale, therefore, placed it beyond his power to save his property from the very moment that he had signed the deeds. The evidence showed that Beck and Tonks had taken possession before the creditors were called together, and before they were asked whether they would accept a composition of 6s. in the £. The evidence further showed that when they were called together a report of Mr. Carroll’s was laid before them, on which it appeared that the whole assets of Edward Tonks were secured to Beck and Tonks by bills of sale, and plainly intimating to them that their only choice was whether they would take a dividend of ss. in the £, or get nothing at all. That was the choice proposed to them, and they were led to believe that they had no other alternative. The valuation of Mr. Carroll also would lead the creditors to suppose that the value of the property transferred to Beck and Tonks did not exceed the amount that must be paid to the preferent creditors, and ss. in the £of the unsecurred debts. The list of assets filed in Court by Mr. Tonks showed the same thing. Upon this state of facts Mr. Barton submitted that if he could show the Court that the creditors had been misled when they were given to understand that the bills of sale were valid against them, and that the property was of no more value than Mr. Carroll had estimated it at, such a transaction would be, according to the English authorities, contrary to the principles of the bankruptcy law, and could not be allowed to stand. Even a creditor, who had under such circumstances assented to the composition, would be entitled to withdraw his consent when he discovered the truth, and a fortiori a creditor who had never assented might dispute the whole proceeding. Mr. Barton then said that having thus made a general statement of the broad facts he would now proceed to state his legal propositions and support them by cases. His first point was, that the requisite number and value had not lawfully assented to the deed. According to the list filed by Mr. Tonks the creditors were 29 in number; 9 only bad assented. Section 138 of the Bankruptcy Act required a majority in number. As to value, the same section required that that majority must represent three-fourths in value. Now, the total value of creditors' debts, according to the list filed in Court, amounted to £3IBB, but this amount would have to be increased by creditors omitted, as follows ; Mr. Khodea, a mortgagee, £450; the Bank of, Australasia, £246; and Moorhouse and Stafford for the £BO (which having been wrongfully paid to them, must be still treated as a debt due by the estate). Thus, the total valuation of the debts due by the estate amounted to £3964. The total assenting creditors, as from the creditors’ resolution filed in Court, amounted to £2493, which was not three-fourths of £3964, and therefore was insufficient. But even if the total debts be taken as only £3IBB (according to the list filed) the list of assenting creditors as filed must be considerably reduced, because secured creditors were counted amongst those who had assented, and such secured creditors are expressly forbidden by the Act to be counted (section 122). Beck and Tonks at’ the moment' of giving their assent were secured creditors for their whole debt, and Moorhouse and Stafford were treated as secured creditors for £SO of their debt. Therefore boththese creditors’ assents go for nothing. The Chief Justice : These creditors may have been secured up to that moment; but did they not,’by signing the deed, agree to take ss. in the £ like the rest ?

Mr. Barton : I submit not, your Honor. I submit that the effect of their signing the deed, which expressly provided that secured creditors should be paid preferentially, would not have such an effect, and that an.election by them to abandon their security was required before they could vote. - I The Chief Justice : But Messrs. Beck and Tonks, by the recitals in the deeds of'composition, expressly' agreed to accept ss. in, the pound, and therefore they have elected. Mr. Barton admitted this to be so, but called attention to a clause in the deed, which provided that unless the requisite number and value of creditors consented to take the sa. in the £ so as to bind everybody, the whole deed should he void as against Beck and Tonks, and they should revert back to their original secured position. He therefore contended that they, had not made the election required by law. But he further contended that even if they had, the list of assenting creditors must be reduced considerably for quite anotherreason, viz., Beck and Tonks and O'Shea assented each for sums beyond those for which they were entitled to prove. They were both creditors by bill of exchange, and they had both discounted certain of their bills, such bills being under discount at the moment when they were giving their assent. Beck and Tonks bills under discount amounted to over £BOO ; O’Shea’s amounted to over £IOO. This £9OO must be taken off the total of the assenting list; the persons entitled to prove for this £9OO (and therefore to give or refuse assent), being the Bank of Australasia for £BOO and the Bank of New Zealand tor £IOO. The deduction of this £9OO would reduce the list of assenting creditors far below the required statutory value. In support of his contention Mr. Barton cited ex parte I’ctre re Petre, 37 L.J., Bky. 13 ; ex parte Mathews re Angell, 44 D.J., Bky. 128 ; Whittaker v. Low, 35 L.J., 44 ; Turquand v. Moss, 13 C. 8., 17. Mr. Barton then submitted that independently of the above consideration the deed, even if assented to by the requisite number and value, must be declared on act of bankruptcy, because Messrs. Beck and Tonks and Mr. O’Shea were (unknown to the other creditors) receiving a larger dividend on their debts than the others, and such larger dividend amounted to an improper preference within the meaning of the Bankruptcy Act. He would take. Beck and Tonks’ : case first. According to the evidence they bought first the leasehold premises and machinery for £IOOO, which premises and machinery Edward Tonks had. eighteen months before (when property was less valuable than it is now) valued at £1750. They bought the stock, which Edward Tonks valued at £3OO, for £2OO. They bought £SOO good debts, £277 doubtful debts, and £146 bad debts, and the goodwill of a going business for nothing—that'is to say, they were given in without any payment beyond that made for the stock and premises. The total value of what they bought was at the least £2600, tor which £2600 worth of property the total payments they would have to make were to be as follows :—To the mortgagee, Rhodes, £450 ; to Moorhouse and Stafford, £SO; for wages, £2O ; and for 6s.

dividend (exclusive of their own dividend), which of course they would retain in their own hands, £416. But even counting their own dividend as a payment to be made, they would obtain property worth £2600 in return for payments amounting to only £1260. Thus it appeared that instead of receiving only ss. in the £ like the other creditors, they were receiving within a fraction of 255. 6d. in the £. The Chief Justice : But does not every person who purchases a bankrupt estate for a dividend to be paid to the creditors hope to make some profit out of the transaction, and if he makes a large profit is that any reason why it should be treated as a fraud ? If the creditors choose to sell to him at a price they are willing to take, is not that a fair transaction ? Mr. Barton : Certainly your Honor, if it be a fair transaction ; but that is the whole question. If the creditors were not deceived, and knew what they are selling, it would be another affair. But the authorities show that even though the assenting creditors were aware of what they were doing, they cannot, by accepting a composition unreasonably small in comparison to the value of the property, bind the non-assenting creditors. The assenting creditors must do that which would be reasonably fair, and the law will not permit them to sell at a gross undervalue property which fairly belongs to the whole body. Ex parte Williams re Pullen, 39 L.J., Bky. 1 ; Ex parte Cowan, 36 L.J., Bky. 41. It is also a principle that, where one of the creditors themselves is the purchaser, there must be the utmost good faith and openness in the transaction, the Courts watching such cases with great jealousy. Daugleish v. Tennant, 36 L. J., Q.B. 10; Wood v. Barker, 35 L.J., Chanc. 276 ; “ De Gex and Smith on Deeds of Composition,” introduction 50; Ex parte Marshall, 10 L. J., Bky. 34 ; Bradshaw v. Bradshaw, 9, M. and W. 29. Mr. Barton lastly dealt with Mr. O’Shea’s part in the transactions. According to the evidence, Mr. O’Shea was at first a joint purchaser with Mr. Wm. Tonks of Edward Tonks’ estate, but this fact was not disclosed to the creditors at any of the meetings, nor were they given to understand that he was to receive any sum beyond his dividend of ss. in the £. Subsequently, when these proceedings were threatened by Poll, Mr. O’Shea changed his position in the matter by selling his share of the estate to William Tonks for a sum equal to 10s. in the £of his debt. Thus Mr. O’Shea’s first position, which he held at the time he presided as chairman of the creditors’ meetings, was that of a person who would share William Tonks’ profits, and his sale to William Tonks for a payment of 10s. in the £ shows that he and William Tonks both estimated the value of that share at 10s. in the £ upon Mr. O’Shea’s debt, at the least. Thus Mr, O’Shea was given a preference over the other creditors, who were only to receive ss. in the £. The English authorities clearly show that such an arrangement is contrary to the bankruptcy laws, and vitiates the whole transaction. For these reasons, Mr. Barton submitted the deed of composition must fall. Mr. Allan said that he would be obliged by his Honor permitting the matter to be adjourned till Wednesday, instead of Tuesday. He had only been instructed very late, and had not had time to prepare his argument. He hoped his learned friend would not object to this indulgence. His Honor said that it might become necessary for him, in certain aspects of the case, to know whether there were any bills of exchange to which Edward Tonks was a party, either as drawer, acceptor, or endorser under discount with the Bank of Australasia at the date of the deed of composition ; and he suggested that Mr. Allan should cause inquiries to be made at the bank, and that the result of those inquiries should be submitted to Mr. Barton. If Mr. Barton agreed to the correctness of that result, his Honor would accept it as evidence between the parties ; but if not agreed to, then the bank manager or ledger-keeper should be called, so that he might give the necessary information on oath. The Court then adjourned till 11 a.m. on Wednesday. -