IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISTON OF NEW SOUTH WALES AND THE ) ) ) ) BANKRUPTCY DISTRICT IN THE STATE ) ) ) ) ) AUSTRALIAN CAPITAL TERRITORY No. W236 of 1975 RE: DERRYL MICHAEL MAXWELL ORDER Judge making order: Beaumont, J. Date of order: 21 July, 1983. Where made: Sydney. THE COURT ORDERS: 1. The public examination of the bankrupt shall be deemed to have been concluded on 17 July 1978. I order the discharge of the bankrupt. The operation of the order of discharge shall be suspended for a period of nine months from this date. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT IN THE STATE OF NEW SOUTH WALES AND THE No. W236 of 1975 AUSTRALIAN CAPITAL TERRITORY RE: DERRYL MICHAEL MAXWELL CORUM: BEAUMONT, J. DATED: 21 July, 1983. * REASONS FOR JUDGMENT Derryl Michael Maxwell ("the bankrupt") has made an application for discharge from bankruptcy pursuant to s.150 of the Bankruptcy Act 1966 (Cth.) ("the Act"). No objection to this application for discharge has been lodged by any creditors. The Official Receiver does not oppose the application. The estate of the bankrupt was sequestrated on 18 June, 1975, upon the petition of a creditor, Orange Commonwealth Employees Credit Union Limited. The bankrupt would have been discharged under the provisions of s.149 of the Act, before its amendment in 1980, upon the expiration of five years from the date of the bankruptcy. On 5 June, 1980, an objection to discharge from bankruptcy by force of s.149 of the Act was lodged by the Official Receiver on the ground that "there is a deficiency in the estate in excess of $30,000.00." This objection prevented the bankrupt's "automatic"discharge from bankruptcy in 1980. So far as concerns the deficiency of $30,000 referred to in the objection, the bankrupt claims that a debt of $24,924.00 was discharged by his father under a court order in 1978. In his statement of affairs the bankrupt revealed the following assets: "Balance of bank account at Westpac Banking Corp. Ltd. Camden $4.50 Cash in hand 90.00 Freezer $450.00 Less amount owing under hire purchase agreement to Avco Financial Services Ltd. 580.00 Nil Deficiency $130.00 $94.50 The freezer was repossessed by the finance company." A total of $163.32 has been brought to the credit of the estate account as follows: "Deposit on petition $ 20.00 Refund of stamp duty 1.03 Balance bank account 2.29 Contributions - 1976 $70.00 1980 $70.00 140.00 $163.32 The bankrupt disclosed five unsecured creditors for amounts totalling $2,126.98. He also disclosed a hire purchase creditor, Avco Financial Services Limited. Twelve creditors have lodged claims in the estate of which eleven were admitted to rank for dividend for amounts totalling $10,046.00. The remaining proof of debt for $24,924.90 lodged by W.M. & J. Malskaitis has not been admitted to rank for dividend. This debt is in part supported by a guarantee from the bankrupt's father, Keith Maxwell and on 14 December, 1978 Mr. and Mrs. Malskaitis obtained a District Court judgment against him for $19,304.10. No dividend has been paid in this estate. Petitioning creditor's costs have been estimated at $300.00 and an amount of $47.71 was paid on account of such costs. A further amount of $1,340.94 is required to meet the balance of the estimated petitioning creditor's costs, official fees and costs of administration. The public examination of the bankrupt was set down for 15 December, 1975, 17 February, 1976, 6 March, 1978, 31 May, 1978 and 17 July, 1978. The bankrupt failed to appear on all of these dates except for 17 February, 1976. On 20 July, 1978 the Registrar in Bankruptcy issued a warrant for the apprehension of the bankrupt, as he had failed to attend for an examination under s.69 of the Act which had been set down for 17 July, 1978. On 17 July, 1978, the examination was adjourned to a date to be fixed. On 25 July, 1978 the bankrupt was brought before the Registrar for examination under s.81l. On that date the examination was concluded. The bankrupt is a married man aged thirty three years. His wife, whom he married in 1979 and two children aged four years and six months, are fully dependent upon him for support. The bankrupt is required to pay maintenance of $15.00 per week for two children of a previous marriage. He 1s presently em- ployed as a commission agent by the A.M.P. Society and receives an average weekly commission of $200.00. The income received by the bankrupt is unclear because of his failure to lodge in- come tax returns. The last income tax return lodged by him was for the year ended 30 June, 1973. The bankrupt has attributed the cause of his bankruptcy to his refusal to pay the loan to the petitioning creditor. The report of the Official Receiver dated 3 June, 1983, deals comprehensively with the facts leading up to the bankruptcy. In February, 1972, the bankrupt acquired a Ford sedan costing $3,577.00 on hire purchase from Associated Midland Corporation Ltd. In October, 1972 the vehicle was repossessed as instalments were in arrears. In July, 1972 the bankrupt borrowed $600.00 from the Orange Commonwealth Employees Credit Union Limited. The loan proceeds were used to purchase household furniture. In October, 1972 this loan was refinanced. An amount of $1,365.23 was borrowed. Of that sum, $665.23 was used to repay the first loan and the balance of $700.00 was used to purchase a 1969 Honda Sedan. In that same month, the bankrupt traded in the Honda Sedan recently purchased for $600.00 and acquired a new Ford Capri Sedan for $3,880.00 by means of a hire purchase agreement with Esanda Limited. The bankrupt later declined to pay instalments to the finance company as the dealer had allegedly refused to fix a number of mechanical faults. The vehicle was repossessed on 15 March, 1974. In December, 1972 the bankrupt's first wife left home, taking with her all the household items purchased with the proceeds of the credit union loan. The bankrupt then declined to pay the instalments under the loan agreement, as he considered that his wife, having possession of the items, should pay at least one half of the instalments payable. Early 1n 1973, the bankrupt was transferred in his employment as a telephone technician to the Camden Telephone Exchange. He obtained, without his employer's consent, part- time employment as a security guard and pursuant to such employment, obtained a firearms licence. On 5 Cctober, 1973 the bankrupt borrowed $2,000.00 from Communication Credit Union Limited. He later resigned his employment with Telecom after disciplinary action had been taken against him for engaging in outside employment without consent. Superannuation and long service leave moneys were not refunded as part of the disciplinary action, it 1s claimed by the bankrupt. From about October, 1973, the bankrupt carried on business under the name of "Southern Highlands Security Service". The business provided a general type of security service to clients and was conducted from the bankrupt's residence at Campbelltown. Overdraft accommodation was provided by the State Bank of New South Wales, Camden, with the account being guaranteed by the bankrupt's brother, Allan Keith Maxwell. It appears that this business continued trading up to February 1978 when the registration of the business name expired. On 1 October, 1979 the bankrupt's then de factor wife, Maureen iSusan Lillis, became the registered proprietor of the firm hame. By an agreement dated 13 May, 1974, the bankrupt pur- chased for $16,000.00 from Wolfgang Marius Malskaitis and Jill Malskaitis the company structure, goodwill and equipment of a security service business known as Camden Security Service Pty. Limited. The bankrupt took no action to have himself recorded as a director of Camden Security Service Pty. Limited. Its directors were still recorded as W.M. & J. Malskaitis. The purchase price was to be financed as follows: Deposit - $7,000.00 To be borrowed from Alliance Acceptance Ltd. Mr. and Mrs. Malskaitis gave a mortgage over their property at Camden as security for the loan. The bank- rupt was to pay the monthly mort- gage instalment of $239.24. Balance - $9,000.00 Payable on or before 26 April, 1977 with interest of 12% payable monthly. The transaction was supported by a guarantee from the bankrupt's father, Keith Maxwell. In a separate arrangement, the bankrupt agreed to pur- chase an additional security business known as Picton Security Service plus a pool table from Mr. Malskaitis. Neither of these transactions was supported by a guarantee from the bankrupt's father. The bankrupt leased the business premises at 65 Broughton Street, Camden from Mr. and Mrs. Malskaitis for a period of twelve months at a weekly rental of $40.00. The company, : Camden Security Service Pty. Limited and the business, Picton Security Service, both appear to have continued trading until approximately September, 1975. On 18 December, 1974 a Holden Station Sedan was acquired on hire purchase from Citicorp Ltd., in the name of Camden Security Service Pty. Limited. The transaction was supported by a personal guarantee from the bankrupt. In October, 1975, the : vehicle was repossessed with the loss on sale amounting to $827.00. The bankrupt could not honour the personal guarantee when called upon to do so. oy In February, 1975 the bankrupt was evicted from business premises leased from Mr. and Mrs. Malskaitis. On 17 February, 1975 he leased premises at 109 Argyle Street, Camden from Peppertree Properties Pty. Limited for a period of six months at a weekly rental of $35.00. The bankrupt used these premises as both a residence and business premises for Southern Highlands Security Service and Camden Security Service Pty. Limited. The bankrupt was evicted from these premises in June, 1975 and moved to new premises at Narellan. Whilst trading from premises at 109 Argyle Street, Camden the bankrupt became indebted to the Shell O11 Company of Australia Limited for $820.00. The debt was incurred in the name of Southern Highlands Security Service. In September, 1975, both Camden Security Service Pty. Limited and Picton Security Service ceased trading. The bank- rupt cannot recall detaiis of the company's financial position at the time 1t ceased trading. He has not indicated what became of the company assets. On 22 December, 1978 Camden Security Service Pty. Limited was struck off the register of companies. The bankrupt still continued to trade as Southern Highlands Security Service. On 12 September, 1975 the bankrupt's brother, Allan Keith Maxwell became the registered proprietor of Cash Security and Protection Service. That business provided a general type of security service and traded from the bankrupt's residence at Narellan. The business was managed by the bankrupt for approx- imately three years. He endeavoured to dividehis time equally between his brother's business and that of his own which still traded as Southern Highlands Security Service. On 1 January, 1977 the bankrupt's second wife, Delma Maxwell, whom he divorced in 1979, became a registered proprietor of Cash Security and Protection Service with Allan Keith Maxwell. At his public examination on 25 July, 1978, the bankrupt stated that his former wife did not take up any part in the business following breakdown of their marriage. The registration of the firm name was cancelled on 21 May, 1979. On 22 May, 1978 the bankrupt was convicted on four changes relating to cheques which were not met on presentation. He appealed against his conviction. In each case, the appeal was dismissed but without proceeding to a conviction. The bankrupt was discharged under s.556A of the Crimes Act upon entering into a bond of $300.00 to be of good behaviour for a period of three years and to appear to receive sentence if called upon. Southern Highlands Security Service ceased business during February, 1978. The bankrupt's then de facto wife, Maureen Susan Lillis, whom he married in 1979, subsequently established three businesses, the nature of each being identical to those formerly conducted by the bankrupt. The businesses were Cash Security Services registered on 1 November, 1978; Cash Security Couriers registered on 11 May, 1979 and Southern Highlands Security Service registered on 1 October, 1979. The ~10- bankrupt obtained a number of loans either 1n his own name or jointly with his de facto wife, to provide some working capital for these businesses. He did not disclose his bank- ruptcy at the time such loans were obtained and was later con- victed on a number of charges relating to these loans. The bankrupt was the sole employee of each business which ceased trading during 1979 and 1980. The bankrupt was unemployed until November, 1980. On 25 November, 1980, the bankrupt was sentenced in the District Court (Criminal and Special Jurisdiction) at Sydney to twelve months imprisonment following his conviction on each of ten charges under the Act and one charge under the Crimes Act. The sentences were to be served concurrently commencing from 25 May, 1980. Following his release from prison in September, 1981, the bankrupt has been either unemployed or employed at various periods as an insurance agent. The Official Receiver in his report states that the conduct of the bankrupt since the date of his bankruptcy, has been unsatisfacory. He points to the bankrupt's failure to attend for examination under s.81 of the Act on 17 July, 1978 and his subsequent apprehension pursuant to a warrant issued by the Registrar in Bankruptcy. More importantly, he provides details of offences. The bankrupt's conviction under the Crimes Act related to a cheque for $250.00 which was not met on presentation and the ten charges under s.269(a) of the Act involved obtaining credit to the extent of $200.00 or more without first informing the creditors concerned that he was an undischarged bankrupt. Details of these ten offences are as follows: 1. Between 3 June, 1977 and 14 October, 1977 at Sydney, the sum of $923.48 obtained from National Bank of Australasia Limited, Bankcard Department. 2. 30 August, 1978, jointly with Maureen Susan Maxwell (nee Lillis), credit of $2,000.00 obtained from the Commercial Banking Company of Sydney. 3. Between 16 October, 1978 and 26 January, 1979 at Sydney, credit obtained in the sum of $1,551.47 from the Commonwealth Trading Bank of Australia. 4. 12 January, 1979, jointly with Maureen Susan Lillis and Allan Keith Maxwell, obtained credit in the sum of $5,147.83 from C.B.F.C. Limited Sydney. 5. 26 April, 1979 at Orange, obtained credit in the sum of $1,200.00 from the National Bank of Australasia. 6. 30 April, 1979, jointly with Maureen Susan Lillis, ob- tained credit in the sum of $1,460.87 from the Commonwealth Trading Bank of Australia. 7. 3 May, 1979, credit obtained in the sum of $1,000.00 from the Bank of New South Wales. - 12 - 8. 4 May, 1979 credit obtained an the sum of $1,250.23 from the Commonwealth Trading Bank. 9. Between 19 September, 1979 and 23 November, 1979 obtained credit in the sum of $2,415.72 from Australia and New Zealand Banking Group Limited. 10. 2 October, 1979 obtained credit to extent of $350.00 from Bank of New South Wales, Bankcard Department. Sub-sections (5) and (7) of s.150 of the Act are the rel- evant source of power to grant a discharge. Sub-section (5) requires the court, 1f any of the matters specified in sub- section (6) is established, to refuse to make an order of discharge or to make an order of discharge but suspend its operation, as the court thinks proper, either unconditionally or subject to conditions. Sub-section (7) prevent's the court under sub-section (5), from suspending the operation of an order of discharge subject to conditions that require or have the effect of requiring the bankrupt to make payments from his income at any time after the expiration of five years commencing on the date of the bankruptcy. One of the matters specified in sub-section (6) of s.150 is established in the present case, namely s.150(6) (1), "that the bankrupt has been convicted of an offence against this Act or the repealed Act or of any other offence related to his bankruptcy". Hence, the power of the court in this application is confined by the terms of sub-sections (5) and (7). -B- In considering whether the bankrupt should receive a discharge, it has been laid down repeatedly that the court must have regard not only to the interests of the bankrupt and his creditors, but also to the interests of the public and of commercial morality; see Re Haines (1937) 10 A.B.C. 87; Re Gray (1960) 10 A.B.C. 29; Re Trautwein (1950) 15 A.B.C. 119. In the exercise of its discretion, the court must also consider the conduct of the bankrupt relevant to his bankruptcy. In this case, there are arrayed against the bankrupt's application for discharge, his convictions for offences under the Act and the Crimes Act. As detailed earlier, these offences are numerous and were committed between June, 1977 and October, 1979. In Re George Dennis (1909) 26 W.N. (NSW) 123, Salisbury, J. held that where a bankrupt obtains credit without first informing the creditor that he is a bankrupt, the offence should be regarded as one of the more serious of those mentioned in s.40 of the Bankruptcy Act, 1898 saying (at p.124): "To my mind this offence is one of the more serious of those set out in s.40. The bankruptcy law long laboured under the stigma that 1t provided no means for compelling uncertified bankrupts to disclose their position when obtaining credit, but allowed them by adopting some such expedient as moving to a district where they and their history were unknown, to start trading afresh on the eredit given by a new body of creditors until they were again compelled to seek relief from the court. The Act 60 Vict. No. 29 attempted by the enactment which now is known as sub-section (r) of section 40 of the Bankruptcy Act 1898 to reform this abuse. All that the enactment does, however, 1s to make the failure on the part of an uncertified bankrupt to disclose the fact of his bank- ruptcy when obtaining credit a ground for refusing or suspending an order of discharge in a subsequent bankruptcy." -la- In Re Charles James Fleming (1922) 23 S.R. NSW 169 at 173, Street, C.J. took a similar view. However, 1t must be remembered that the bankrupt has suffered the punishment imposed by the District Court for the offences concerned. Since his release from prison in Septmeber, 1981, the bankrupt has been either unemployed or employed at various periods as an insurance agent. He is presently employed as an insurance agent. The Official Receiver reports that the bankrupt did not keep any books of account or records for any business venture in which he was engaged prior to his bankruptcy. However, he notes that the failure of the bankrupt not to maintain adequate records did not hamper the trustee in the administration of his estate. In Re Gray (1960) 19 A.B.C. 29, Clyne, J. said (at p.31): — "Upon such an application for discharge, the court has a wide discretion. It may grant an unconditional discharge. In certain events it may either refuse or suspend a discharge. 'After all, the overriding intention of the Legislative in all Bankruptcy Acts is that the debtor on giving up the whole of his property shall be a free man again, able to earn his livelihood and having the ordinary inducements to industry. Sometimes it is not right that the bankrupt should be free immediately, he must pass through a period of probation and theoretically there may be cases in which he ought not be free at all'. (Re Gaskell [1904] 2 K.B. 478 at p.482). Some cases are plainly not theoretical." In my view, 1t would be appropriate to grant a discharge to this applicant, but having regard to his unsatisfactory commercial dealings and his convictions for offences under the Crimes Act and the Bankruptcy Act, I propose to order that the order of discharge be suspended for a period of nine months. - 15 - I order that the public examination of the bankrupt shall be deemed to have been concluded on 17 July, 1978. I order the discharge of the bankrupt. I further order that the oper- ation of the order of discharge be suspended for a period of nine months from this date. ea etter I certify thet this and the 14 preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Bosumnt athens Associate Dated: all Guy (46> '