I’m no expert on bankruptcy law, but this report about Moses Obeid strikes me as curious.
THE $16.6 million debt Moses Obeid’s company owed to the City of Sydney was wiped out yesterday after Obeid-friendly creditors voted to accept payment of 1¢ in the dollar in full satisfaction of their debts, most of which were small.
The report states that 13 small creditors of Obeid, including his sister Gemma Vrana, voted to accept a Deed of Company Arrangement (DOCA) of 1% in full settlement of the debt.
Meanwhile the large creditors, principally the City of Sydney, voted against the DOCA. With interest and Court costs, the debt owed by Obeid to the City of Sydney is $16.6 million.
The report states that the Council was joined in voting against the DOCA by Telstra, ANZ Bank and Abacus Property Group.
The total amount owed by Obeid is $17.5 million, so the amount owed to unsecured creditors other than the City of Sydney is $900,000 – I don’t know what is owed to Telstra, ANZ and Abacus.
Does this mean that a majority of creditors (by number) are able to force creditors (who are owed the largest amount of money) to settle for a small fraction of what they are owed?
If so, that is a bizarre outcome. If I owe Sinclair Davidson $10 million, and I owe $1 to my husband and another $1 to my sister, can we therefore force Sinclair to accept $100,000 in full payment of the debt?
If I was your Solicitor I’d say yes unless Sinc’s Solicitor phoned me discretely to say that that course of action could lead to two broken legs in a dark alley one night, then my advice to you Samuel would be pay you debt in full!
Splatacrobat
10 Aug 12 at 4:09 pm
Majority usually rules. However the other unsecured creditors could have immediately insisted upon a ‘poll’ being taken. That would then force the requirement for both half or more of the unsecured creditors present plus creditors with outstanding debts worth more than half of the total.
If they don’t meet both criteria then the attempt fails,
A question is, why a poll was not insisted upon?
Bryce
10 Aug 12 at 4:35 pm
I have had a debtor dodge me (eventually they went bankrupt after paying my a couple of times in a Part IX agreement) and I was owed only a small proportion of their total debt and the votes were done as a share of dollars owing, IIRC. Mine was administered through ITSA and handled by a private collection agency.
.
10 Aug 12 at 4:43 pm
If what Bryce says is correct, then the Council is negligent/incompetent/corrupt (take your pick) to the highest degree. More public money (taxes) wasted by government.
Frank Brus
10 Aug 12 at 4:53 pm
I believe something similar happened when the WA mining company Sons of Gwalia went into receivership. The final settlement was approved by a majority of creditors, but not by the creditors who owned the majority of the company’s debt. Still legal.
squawkbox
10 Aug 12 at 4:54 pm
It’s insolvency not bankruptcy when you talk of a company.
And yes what Bryce says is true. However, the Council may have realised that they wouldn’t get their money even if they would up the company, so that explains why they didn’t force a poll on the DOCA.
Rococo Liberal
10 Aug 12 at 5:14 pm
A slight segue …
A while back, I read an article that described how representations made by a car manufacturer regarding a model’s fuel consumption turned out to be very wrong. Rather than do the usual class action nonsense, which serves only to enrich lawyers, many owners took action in the small claims court. The benefit, to the plaintiffs, was that unless a representative from the car manufacturer attended each hearing, summary judgement would be given. (From memory, these courts, both here and in the US, are represented by the parties, not lawyers.) The company could not possibly hope to defend each individual’s claim against them.
In a matter where there is a valid case, this is a win for individuals and an up-yours to the legal profession. It could also be a death by a thousand cuts to a large defendant who would expect such grievances to be fought against the large firm, by a large law firm, defended against by another large law firm, with a large body of plaintiffs. It re-programmed the situation.
Thoughts?
e-girl
10 Aug 12 at 5:15 pm
I should have read the article first.
It is clear that the Council was incompetent.
I assume they will now go to the Courts to break the DOCA.
Rococo Liberal
10 Aug 12 at 5:17 pm
A Deed of Company Arrangement must take into account not just numbers but Value of the creditors; I’d be in Equity now seeking the dissolution of the Deed; but then I’m not working for the council or other large creditors.
cohenite
10 Aug 12 at 5:18 pm
Rococo
And I’ll be willing to bet the long suffering rate payers of the CoS will never get to sight the analysis on this as millions of dollars are kissed goodbye without explanation.
Barry !!
Myrrdin Seren
10 Aug 12 at 5:19 pm
Sam – congratulations!
Catallaxy’s first same-sex marriage!!
Dandy Warhol
10 Aug 12 at 6:50 pm
That scumsucker family should all be in jail
Alice
10 Aug 12 at 6:58 pm
stuff that
something is very wromng with the system when people like the Obeids get away with this. All I can say is they muist have the same lawyers as the Calabrian Mafia.
This totally sucks. They need to be brought down and fast.
Alice
10 Aug 12 at 7:03 pm
WTF is wrong with the legal system?
Alice
10 Aug 12 at 7:04 pm
It full of lawyers
oil shrill
10 Aug 12 at 7:09 pm
Yeah – thats right. Lawyers for criminals who can afford their bloody charges (hang on thats $25 for a fax $50 for an email $100 if they have to go to the toilet and think about your legal problem and its all BS).
Stuff lawyers – we need a lawyer busting law.
Alice
10 Aug 12 at 7:14 pm
Get a whole lot of your mates to vote to defraud other people…
And you’re surprised that an ex-ALP power broker would try to get away with such things?
This is the whole purpose of the ALP isn’t it?
Richard D
10 Aug 12 at 7:25 pm
Obeid – how the hell did he end up where he got?
Shoulda gone to jail the scumbag
Alice
10 Aug 12 at 8:48 pm
and Costa and Roozendahl
Creeeps
Alice
10 Aug 12 at 8:49 pm
Sure Alice, you can pay a lawyer what you think they are worth, and get some Macq. U grad with no clue and lose everything you own.
.
10 Aug 12 at 9:36 pm
Alice, I thought that Costa was one of the few good influences in the ALP. He was done over (mainly by Robertson) because he was straying a little too far in a libertarian direction. The state would have been far better off if he was able to sell off electricity assetts in 2008. Not one of Barry O’Farrell’s better moments by the way.
Richard D
10 Aug 12 at 10:45 pm
Costa or Tripodi?
ar
10 Aug 12 at 11:18 pm
So I can loan a couple of grand from Rabz, Skuter, Daddy Dave and then stiff the bank for a couple hundred grand. Wow, I wonder if a non politically connected bloke like me can do this? Somehow I think this is an ALP only, special mates rates type of deal.
John Comnenus
10 Aug 12 at 11:43 pm
I believe any one can call a vote that requires both half in number *and* half of the goal credit.
It’s meaningless of course if there is no possible chance of recovering anything.
Mundi
11 Aug 12 at 12:18 am
Ah my bread and butter as an insolvency practitioner.
What has happened is that the creditors have voted on a Deed of Company Arrangement. They voted by poll; the rule in a corporate insolvency poll is that to pass the resolution needs to must a simple majority of both number and value. This they did without getting a clear outcome one way or the other, resulting in a “tie” (or strictly, no result). In these circumstances the Administrator has a “casting vote” – in this case, cast in favour of the Deed of Company Arrangement. The “losing” creditors can then ask the court to set the casting vote aside, but it will normally only do so if there is a material irregularity in the report prepared by the Administrator; evidence of fraud or irregularity in the meeting processes (difficult to prove) or an irrational unfairness to the deed. Not that I’ve seen it, but my betting is that the Administrators’ report told creditors they’d get more under the Deed than under the alternative of going into liquidation; given the difficulty of getting civil recovery in Australia (and the fact the directors are probably broke) that may be the correct view.
Pyrmonter
11 Aug 12 at 5:50 pm
Mundi, that’s what I though the situation was you needed a majority of creditors and a majority of the credit to approve a DOCA… Perhaps in this case the majority of credit decided to vote for the DOCA because they saw liitle chance of getting much money back or convincing the majority of creditors to agree to a “better” return.
Harry Lime
12 Aug 12 at 8:59 am
Didn’t we used to have a law where a ‘Public Prosecutor’ (my term) could demand someone who was wealthy and thought to be a bit dodgy, prove they got their money honestly?
Winston Smith
12 Aug 12 at 7:16 pm