CATCHWORDS BANKRUPTCY - Application for discharge - Successive bankruptcies - Opposition on grounds that debt contracted without reasonable prospect of payment and without disclosing the fact of an existing bankruptcy - Grounds of opposition established - Failure of bankrupt to make any contributions for the benefit of his creditors - Desire of bankrupt to obtain discharge to contest Mayoral election - Proposal to procure others to pay out creditor zn second bankruptcy ~ Whether proposal should be adopted by Court - Principles applicable to application for discharge. Bankruptcy Act 1966 ss. 149, 150 RE BRIAN STANLEY SHEPHERD QLD 339 OF 1981 NSW 583 OF 1978 WILCOX o 13 FEBRUARY 1985 SYDNEY ee ee eee ee a ee ee nn et ae ee ee ee ee IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No. QLD 339 of 1981 No. NSW 583 of 1978 BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE wee eevee vw AUSTRALIAN CAPITAL TERRITORY RE: BRIAN STANLEY SHEPHERD QRDERS CORAM: WILCOX J DATE: 13 FEBRUARY 1985 PLACE: SYDNEY THE COURT ORDERS THAT: 1. The application for an order of discharge from bankruptcy be dismissed. 2. The applicant pay the costs of the opponent, Peter Anthony Greenland, incurred in celation to the application. ee er GENERAL DIVISION . IN THE FEDERAL COURT OF AUSTRALIA No. QLD 339 of 1981 No. NSW 583 of 1978 OF NEW SOUTH WALES AND THE ) ) ) ) BANKRUPTCY DISTRICT OF THE STATE ) ) ) ) ) AUSTRALIAN CAPITAL TERRITORY RE: BRIAN STANLEY SHEPHERD REASONS FOR JUDGMENT CORAM: WILCOX J DATE: 13 FEBRUARY 1985 PLACE: SYDNEY This is an application for an order of discharge fron bankruptcy. It has a number of unusual features and presents to the Court a dilemma as to the course appropriate to be taken. The applicant, Brian Stanley Shepherd, has twice been made bankrupt. The first sequestration order was one made against him and his wife on 23 August 1978 by a judge of this Court sitting in the Bankruptcy District of the State of New South Wales and the Australian Capital Territory. The bankruptcy apparently resulted from losses made by Mr and Mrs Shepherd in various retail butchery ventures in New South Wales. Ten proofs of debt were lodged against the joint estate, nine of which, totalling $28,800, were admitted to rank for a dividend. The remaining proof of debt, for $6,742, is subject to further enquiry. In the separate estate of the applicant seven creditors have proved debts totalling $3,253. To date a dividend of 3.2 cents in the dollar has been paid to those creditors - both joint and separate - of the first bankruptcy whose proofs of debt nad been admitted at the date of the dividend, 19 May 1980. In about 1978 the applicant moved to Queensland; settling in Surfers Paradise. In early 1979 he commenced an association with the Gold Coast Visitors Bureau, an organisation apparently supported by the local business community to promote the Gold Coast region of Queensland. The Bureau had designed and produced tokens, in the form of imitation coins, which it called "Gold Coast dollars" and which it sought to sell to tourists. An arrangement was apparently made for the involvement of the applicant in the sale of the tokens. His daughter, Kim, commenced a business under the name "Gold Coast Dollar Promotions" which firm employed the applicant to sell the coins; profits being shared between the Bureau and the firm. The applicant was heavily engaged in this enterprise, publicly promoting himself in a flamboyant way as "the Golden Dollar Man". In the spring of 1979 the applicant became involved in plans for a hoat race from Cairns to Southport and to be known 4s the Pacific 1000 motor boat race. The race in fact took place over 9 days from 20 October 1979. Mr Peter Greenland, who subsequently became the petitioning creditor in the second bankruptcy under circumstances strongly disputed by Me Shepherd, proposed to enter his boat, "Gold Coast 1", in the race. He haa 3. discussions with Mr John Polson and Mr Bob Hutchinson, publishers of a local tourist guide known as "This Week on the Gold Coast", as a result of which the latter gentlemen agreed to act on his behalf in the finding of sponsors for his entry in the race. Mr Greenland says that he was present when, on 7 September 1979, Mr Shepherd signed a letter addressed to Mr Polson which cead as follows: "Pollowing recent discussions with Mr. Bob Hutchinson, relating to the "Gold Coast Dollar" being involved in the Sponsorship of "Gold Coast 1" in the forthcoming Pacific 1000 power boat race from Cairns to the Gold Coast, I confirm the following:- I agree to pay $8,000 for the SOLE sponsorship on the front of the boat, provided the complete front side of the current Gold Coast Dollar is reproduced as indicated on the attached sketch. I understand that International Race Regulations must be considered and will dictate both space and size available. Payment of the $8,000 will be made upon completion of the race, or at the latest by 30th December 1979. I also understand that there w1l1l be no costs incurred by me in painting the dollar logo on the boat." Mr Shepherd admitted in his evidence that the signature on the letter referred to by Mr Greenland is nis own but he has a different version of the arrangement. According to him, Messrs Polson and Hutchinson came to him with the suggestion of a joint venture pursuant to which 5000 tokens, similar to the Gold Coast dollar but bearing a different inscription and referred to by him as "Pacific 1000 coins", would be manufactured at the expense of -- - me ee a ee -- Po 4. a syndicate to consist of Messrs Polson, Hutchinson, Shepherd and Greenland and would be sold for $6.95 each at various points along the coast during the progress of the race. He says that the costs incurred by the boat were to be deducted from the proceeds of sale and that it was anticipated that, if all were sold, there would be a surplus of $8,000 which would go to Mr Greenland. He agreed to participate and subsequently, he says, Mr Hutchinson - on an occasion upon which they were alone together - presented him with a totally blank piece of paper and requested him to sign "to let Greenland know that he was not getting dudded, that he is in our deal". He signed, he says, because he trusted Mr Hutchinson but only after he told Mr Hutchinson "in no mean terms that there was no way in the world I could pay anybody any money or give any guarantee unless we sold all the gold dollars." The issue of "This Week in the Gold Coast" for 23 October 1979 has been admitted into evidence. It includes considerable publicity for the race. The cover photograph shows the applicant celebrating with others the launching of "Gold Coast 1". The caption to this photograph includes the statement: "Major sponsors are the Gold Coast Golden Dollar and the Gold Coast Visitors Bureau". An internal photograph shows the boat, featuring prominently on the boat a facsimile of a gold coin. ee ne i rt te Se ee te The evidence of Mr Greenland is that the Gold Coast Visitors Bureau was his only other cash sponsor but that other organisations, who are named in the publication, were "minor sponsors" who provided goods or services. The names of some of those minor sponsors may be discerned, in less prominent positions than the gold coin, in the photograph of the boat. The two versions of the agreement relating to the boat race are in fundamental conflict. Upon Mr Greenland's account there was a simple agreement between himself, through his agents Messrs Polson and Hutchinson, to allow to Me Shepherd the prime advertising spot on the boat in return for the payment of $8,000. Mr Shepherd's version involves a joint venture agreement between the four men so that nothing would be payable unless about $34,000 was realised by the sale of all coins. It would not usually be relevant for the Court to consider, when determining an application for discharge, whether the applicant bankrupt had been indebted, at the date of the sequestration order, to a particular creditor whose proof of debt has been admitted by his trustee to rank for a dividend. However, a ground of opposition to discharge may involve proof of the contraction of a debt by the bankrupt to the creditor. As will appear, that is the present case and it is therefore necessary for me to make a finding as to the arrangement between Mr Shepherd and Mr Greenland. 6. Neither Mr Polson nor Mr Hutchinson have given evidence before me but I have no difficulty in resolving the conflict of evidence relating to the circumstances under which the letter was signed. Mr Shepherd was in 1979 an experienced businessman. I cannot believe that he would have been so foolish as to sign his name upon a totally blank sheet of paper. Moreover, I note that the signature is in the position one would expect if it had been typed before signing. It would have been an operation of some delicacy to fit the typescript to a prior signature. Pursuant to whatever arrangement was then made Mr Greenland gave to the Gold Coast Golden dollar the prime advertising space on his boat. I do not believe that he would have been prepared to enter into an arrangement which would have this effect about two months before the race, upon the basis that he would be paid $8,000 if, but only if, all of the gold coins were sold; a matter which would be in the hands of others and an event over which he would have no control. Finally, I found Mr Greenland to be a careful straightforward and reliable witness. I cannot say the same for Mr Shepherd. No doubt Mr Shepherd, who appears not to lack confidence in his abilities, assumed that he would succeed in selling all the coins but I find that he signed the letter knowing its contents and intending to be bound by an unqualified obligation to pay $8,000. The letter is not addressed to Mr Greenland but it was conceded by Mr Shepherd in his evidence that he knew that Mr Greenland was the owner of the boat and that Messrs Polson and ~ " nea eben a ee et ee ee eee ee ee et et Det ee ee ee 7. Hutchinson were acting as the agents of Mr Greenland in soliciting sponsorships. Under those circumstances the letter must be read as a contract between Mr Shepherd and Mr Greenland unconditionally obligating the former to pay to the latter the sum of $8,000 not later than 30 December 1979 in return for "sole sponsorship on the front of the boat". Mr Greenland fulfilled his obligation to Mr Shepherd but he received a payment of only $100. He sued to recover the : balance in the District Court in Brisbane. Mr Shepherd says that he was served with process and consulted a solicitor who told him not to worry about it "because they know Lhey can't get any, and they know you are bankrupt". No defence was entered and in July 1980 Mr Greenland obtained default judgement in the sum of $8,060. He commenced bankruptcy proceedings. No steps were taken by Mr Shepherd to resist those proceedings, or to set aside the judgement. On 1 May 1981, on Mr Greenland's petition, a second sequestration order was made, on this occasion by a judge of the Supreme Court of Queensland exercising federal jurisdiction in bankruptcy. Mr Shepherd continued to be employed by his daughter until May 1980. He then became employed as a promotions officer by two businesses known as "Tiki Village International" and "Midnight Cowboy" at a salary of $300 per week. That employment continued until the end of February 1981. Between that date and early 1984 Mr Shepherd was employed as a public relations officer ae pe yee eee w ee ee eh eI ee ee ee ee ee ee ee ee 8. by various firms. However, no payments - from his earnings or otherwise - were made by Mr Shepherd to the trustee of his bankrupt estate. The only realisation in the second bankruptcy, to date, has been the sum of $416.30 from the sale of medallions. This is insufficient to pay the costs of administration and the petitioning creditor's costs. No dividend has been paid upon the only debt proved in the second bankruptcy, Mr Greenland's claim for the amount of his judgement debt. About 12 months ago Mr Shepherd formed the intention of offering himself as a candidate for election as mayor of the Gold Coast. According to him "90 per cent of the people" want him as mayor and the 1985 election, for the first time, will be by popular vote. I was told that nominations will close next Friday, 15 February 1985. Under Queensland law a person who is an undischarged bankrupt is ineligible to be nominated for election to local government off-ice. t is this fact, as Mr Shepherd has frankly admitted, which has occasioned this present application for discharge. Mr Shepherd has, over approximately the last 12 months, been employed in full-time campaigning activities. In aid of the image to which he aspires he has advertised his candidacy within the City of Gold Coast by the use of a vehicle which 1s intended to appear to the general public as being a gold plated vintage Rolls Royce. Mr Shepherd said in his evidence: "I have an image of flamboyant, cclourful, rich, we are playing it all up, it is we me ae ee ee ee ge me ee ee we ee wee a as i AT es ee ree ee 9. part of an act. People think I am a multi-millionaire. That is the impression we are endeavouring to give because it is a tourist resort". Almost immediately he contradicted himself in relation to the multi-millionaire image but then he agreed that he had to promote himself as being successful. I have no doubt that the use of the "Rolls Royce" was intended to promote the idea amongst the electors of the Gold Coast that this candidate was wealthy and successful, and therefore worthy of their support at the poll. The "Rolls Royce" association is deceptive in three respects: the vehicle is not in fact a Rolls Royce, it is not a genuine vintage vehicle and it is not owned by Mr Shepherd; the vehicle has been lent to him by the owner for use in the campaign. However, perhaps unfortunately for Mr Shepherd, one person at least, Mr Greenland, accepted the reality of the image. He believed that the car was genuine and was annoyed to find that Mr Shepherd had such a vehicle when he had not made any contribution to his bankrupt estate. He was even more annoyed to receive notice that Mr Shepherd had filed an application for discharge from bankruptcy. Mr Greenland filed a notice of opposition to the application in which he notified two gruunds: "(a) That the bankrupt contracted a debt with me which was provable in his bankruptcy without having at the time of contracting it any reasonable or probable grounds of expectation of being able to pay the debt after taking into consideration his other liabilities at the time; ne a ee re a re on 10. (Db) That the bankrupt obtained credit by promising to pay the sum of EIGHT THOUSAND DOLLARS ($8,000.00) without informing me that he was an undischarged bankrupt". Section 149 of the Bankruptcy Act 1966 provides for the discharge of bankrupts by operation of law. The general rule, contained in s.149(1), is that, unless sooner discharged by the Court under s.150, a bankrupt is discharged by force of the section upon the expiration of three years from the date of bankruptcy. However, that provision is subject to the qualifications contained in s.149(3), which sub-section excludes discharge by force of the section in certain situations. One such situation (para (b) ) is the case where, since the date of the bankruptcy but before discharge, the bankrupt has again become a bankrupt. This provision has operated to prevent the discharge of Mr Shepherd from his first bankruptcy. But for the second bankruptcy Mr Shepherd would have been discharged from his first bankruptcy by force of s.149 on the third anniversary of the first sequestration order, that is on 23 August 1981. Unfortunately for him the second sequestration order was made just before that date, on 1 July 1981. A similar provision applies to his second bankruptcy. Section 149(3)(a) excludes discharge by operation of law from a second bankruptcy if, at the time when the bankrupt would otherwise have been discharged by force of the section, the bankrupt is still undischarged from an ae ee ee ee ete ee te me ee 1l. earlier bankrutpcy. Thus the existence of each bankruptcy frustrates the applicant's discharge, by force of the section, from the other bankruptcy; and will continue to do so indefinitely. However, s.150 confers power upon the Court to make an order for discharge. Relevantly, and having regard to the grounds of opposition, that section provides: "150. (1) A person who becomes, or has before the commencement of this sub-section become, a bankrupt may apply to the Court for an order of discharge at any time after - (a) his public examination has been concluded; (b) the trustee has notified him in writing, that the trustee does not intend to make an application for his examination under section 69; or (c) the expiration of the period of 12 months commencing on the date of the bankruptcy. (2). (3) On the hearing of an application under this section, the Court shall take into consideration a report in writing by the trustee concerning the bankrupt, his conduct, trade dealings, property and affairs both in respect of the period before and the period after the applicant became a bankrupt. (4) The Court may, in addition - fa) hear, and put such questions as it thinks fit to - (ii) a creditor whose debt has been proved; (1ii) the bankrupt; or 12. (iv) the trustee; and {b) receive such other evidence as it thinks fit. (5) The Court shall, if any of the matters specified in sub-section (6) is established - (a) refuse to make an order of discharge; or (b) make an order of discharge but suspend the operation of the order as the Court thinks proper, either unconditionally or subject to conditions. - (6) The matters upon the establishment of which the Court may exercise the powers specified in sub-section (5) are as follows: (c) that the bankrupt has contracted a debt provable in the bankruptcy without having at the time of contracting it any reasonable or probable ground of expectation (proof of which lies on him) of being able to pay it after taking into consideration his other liabilities at the time; ... (i) 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. (7) The Court shall not, under sub-section (5), suspend 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 the period of 5 years commencing on the date of the bankruptcy. (8) ... (9) Where none of the matters specified in sub-section (6) is established, the Court may - (a) refuse to make an order of discharge; (b) make an order of discharge; or SS ce a er ne et ee en ES ae ee Ee a an a ee 13. (c) make an order of discharge but suspend the operation of the order as the Court thinks proper, either unconditionally or subject to conditions. (10) The Court shall not, under sub-section (9), suspend the operation of an order of discharge beyond the period of 3 years commencing on the date of the bankruptcy. (11) ... (12) 2..." The first ground of opposition relied upon by Mr Greenland seizes upon s.150(6)(c). The bankrupt put in issue the question whether he contracted a debt to Mr Greenland but, as I have indicated, I accept Mr Greenland's evidence on that matter. The debt was provable in the bankruptcy. Those matters being established, the ground is made out unless the bankrupt shows - he bearing the onus of proof upon the probabilities - that, at the time of contracting the debt, he had a reasonable or probable ground of expectation of being able to pay the debt after taking into consideration his other liabilities at the time. In considering that matter I leave out of account the deficiency in the first bankruptcy. The bankrupt was not at the time of contracting the debt under any legal obligation in respect of that deficiency. Nonetheless it is clear that the onus has not been discharged. The precise amount of the bankrupt's earnings in the employment of his daughter is not established by the evidence but it has not been suggested that it would have sufficed to enable him to pay Mr Greenland $8,000 by the end of 1979. Mr Shepherd had no other income or assets. The only u "ee. ee ae ee et TE ei ec ie te ele ee een Rr ete ae me a wee a he 14. possibility of paying the money rested upon the sale of a sufficient number of "Pacific 1000 coins". No doubt Mr Shepherd genuinely believed that he would sell most, if not all, of the tokens but the test imposed by para (c) is an objective one. There was nothing at the date of contraction of the debt, such as a market survey or feasibility report, which provided material to support any objective expectation. Mr Shepherd had nothing to bolster his enthusiasm. In his evidence before me - rightly I believe ~- he described the venture as "a hair raising scheme". It suffered the fate usual to hair raising schemes. In the event only about one third of the "coins" were sold. The evidence relating to expenses is quite unclear, both as to their amount and their ultimate incidence, but it is apparent that the revenue from the coin sales was insufficient to enable Mr Shepherd to pay to Mr Greenland the money he owed. The actual result does not, of course, negative the existence of a reasonable or probable ground of expectation at the date of the contraction of the debt but, especially having regard to the fact that "Gold Coast 1" finished the race, performing creditably - winning some stage prizes - and that the race was run in good weather, it tends to confirm the speculative nature of the venture in relation to which Mr Shepherd pledged his credit. The Circumstances described in s.150(6) are made out, with the result that the Court is circumscribed in its decision upon this application by the terms of s.150(5). I will return to that sub-section in considering what order I should make. 15. The second ground of opposition alleges that the applicant obtained credit from Mr Greenland without informing hin that he was an undischarged bankrupt. In his affidavit of 23 November 1984 the applicant asserted that he had revealed to Mr Greenland, as well as to Messrs Polson and Hutchinson, that he was a bankrupt. Mr Greenland denied this in his evidence. He added that he did not know of the bankruptcy at the date of making the agreement with Mr Shepherd and that, had he known, he would not have done so. Eventually, under cross-examination, Mr Shepherd conceded that he had never told Mr Greeniand of his status. The second ground of opposition is made out. The obtaining of credit by a bankrupt without revealing that he is an undischarged bankrupt is not, in itself, a matter listed in s.150(6) as constraining the exercise of the Court's discretion under s.150(5). Such conduct does constitute an offence under s.269 of the Act, provided that the amount involved is not less than $500, and a conviction for such an offence is a matter covered by para (1) of s. 150(6). However, there has been no prosecution of the applicant for such an offence - or for any other offence - and, under those circumstances, the ground should be regarded merely as being relevant to a consideration of the overall conduct of the applicant and to the proper manner of exercise of the Court's discretion. Se ee -. Tt ne mm ee ee ne ee ene mre Cee ie hI LT SN RF a Pe nt ce ne ae a ns nt nr me cms a et ane mr ae ta Naat 16. The applicant has not made any contribution out of income towards his bankrupt estates. I should say immediately that at no stage has Mr Shepherd been under any legal obligation to make such a payment. No application has ever been made to the Court for an order that the bankrupt pay to his trustee for the benefit of his creditors any part of his income. In the absence of such an order he was entitled in law to retain his income for his own benefit: see s.131(1). However, it is not unusual for bankrupts who are in receipt of income voluntarily to make some contribution in order to augment the dividend and as a sign of good faith towards their creditors. In a case where the Court is satisfied that the bankrupt has a capacity to make contributions that capacity is itself relevant in respect of the choice of order to be made. And the failure voluntarily to make payments denies the bankrupt an opportunity to point to satisfactory conduct having the effect of counter balancing any unsatisfactory conduct which may appear: see Re Harding (19811 57 FLR 320 at pp 332-333. In relation to the creditors of the first bankruptcy - who were mostly trade creditors - the applicant professes only good will - "most of them were friends", he says. They were "honest and genuine creditors" whom he "would like to square up". But he did not in fact make any contribution to his bankrupt estate so as to increase the tiny dividend which they received. However, there may have been a reason for that omission. There 1s no direct evidence but Mr Shepherd asserted DOTS a eS Se i te tte st MOE her ea I at ed ett Ae ne ae at a ee ne re ne ta ee cee ae 17. to the Official Receiver of his first bankrupt estate that he had had a heart attack and a nervous breakdown at the time of the failure of the butchery businesses and that he was, for approximately six months thereafter, in receipt of an invalid pension. If these assertions are correct, and bearing in mind the time to be required to recover financially from such a situation, it is not unreasonable to conclude that the applicant would have found it difficult, if not impossible, to make any significant contribution to the creditors of his first bankruptcy before the situation was complicated for him by the second bankruptcy. And, in any event, there is no element of unsatisfactory conduct, in relation to the first bankrutpcy, alleged against Mr Shepherd and in relation to which his attitude in respect of contributions has to be offset. It seems to be clear that, but for the intervention of the second bankruptcy, he would have automatically been discharged from the first bankruptcy on 23 August 1981. The position in relation to the second bankruptcy is rather different. During his evidence Mr Shepherd evinced marked hostility towards Mr Greenland, declaring that he would, if necessary, go to gaol and pull out of the mayoral election rather than let Mr Greenland "get a zac". I think that this attitude caused the applicant to determine that he would not make any payment which, in whole or in part, might find its way to Mr Greenland. He is now aged only 48 years and there is no evidence that the applicant has been unfit to engage in employment since qe ee ceca es le Te aN Ca a Lt el a a Ns a er eg a mae 18. the second sequestration order. During most of that time - until he gave up employment to begin campaigning ~ he has been employed; most recently at a salary of $300 per week. Mrs Shepherd is in regular employment and contributing to the maintenance of the couple and their one dependent child. It is, in my view, reasonable to conclude that the applicant has had the capacity, since the second bankruptcy, to make worthwhile contributions to his estate but has not done so because of his hostility to Mr Greenland and his unwillingness to accept the conclusiveness of the judgement obtained by hin. Some of the authorities as to the principles which guide the exercise of the Court's discretion on an application for discharge are collected by McGregor J in Re Kolomy (1981) 56 FLR 157 at pp 164-166 and by Lockhart J in Re Harding at p 332. The Court must have regard to the interests of the bankrupt and of his creditors, to the interests of the public and to "commercial morality". The last named concept makes relevant the conduct of the bankrupt in relation to the incurring of the debts proved in the bankruptcy. As was said by Clyne J in Re Trautwein (1950) 15 ABC 119 at p 126: "The words 'commercial morality' cannot be defined with precision, but no doubt they have some reference to a standard of honest dealing generally recognised by that section of the community engaged in commerce; a standard not always reflected in the conduct of some of the individuals comprising it". a ee ee NT A ica aera ee re ee ee ee i i 1s. Plainly it is in the interests of the applicant to obtain a discharge as quickly as possible; desirably, from his point of view, in time to enable him to nominate next Friday as a candidate for election as Mayor of the Gold Coast. Apart altogether from any other advantage there may be to him in achieving election to that office, he would be financially advantaged. The mayoral salary he understands to be of the order of $30,000 "with other little lurks and perks mayors get". Although I believe that the applicant has the capacity for remunerative employment in other fields it is doubtful that any alternative form of employment would yield such an income. The interest of Mr Shepherd's creditors in the fate of the application depends entirely upon the prospect of his making some contribution to his estate for distribution amongst them. If there is no such prospect, the creditors have no interest in a refusal of the application. It 1s, however, at this point that there arises the dilemma to which I earlier referred. During the course of the submissions of counsel for the applicant I indicated my view that, upon the evidence, the applicant had a capacity to make some periodical payments for the benefit of his creditors. I indicated particular concern at the position in relation to the second bankruptcy in respect of which there was insufficient even to cover the costs of administration ($1,082 to date) and the petitioning creditors' costs. Subsequently, and following the luncheon adjournment, counsel indicated that the possibility existed that friends and political supporters of his 1 ee ne ETT i Se Ce a hn ee rN ny a ae ee mae meee 20. client would be prepared to pay out the debt of Mr Greenland. He suggested that I should make an order for discharge, to take effect not later than next Friday, conditional upon such a payment being made. This proposal is obviously to the advantage of Mr Greenland. It was welcomed by his counsel. The proposal represents his best, probably only, prospect of being paid in full. It creates, however, two questions of principle for the Court. The first of these is that it places Mr Greenland in a more advantageous position than the creditors of the first bankruptcy. The trustee of the first bankruptcy is entitled to prove on their behalf in the second bankruptcy: see Bankruptcy Act s.59(1)(c)}. No suggestion has been put of the payment of an amount sufficient to pay out all creditors; possibly because of the sum of money which would then be required. Although the proposal does not involve a payment by the debtor, the bankrupt, to one creditor in preference to others the Court is being asked to encourage by the form of its order the preferential treatment of one creditor as against the others. It has been argued that this course is justified by the circumstances of the case. It is almost certain that, but for the second bankruptcy, the applicant would have been discharged from his first bankruptcy on 23 August 1981 and without his having made any contribution out cf income to his trustee for the benefit of the creditors of the first bankruptcy. Whatever may now happen, it is said, those creditors are no worse off than they would have been if Mr Greenland had never come to any agreement with Mr Shepherd or if, there being an agreement, he had been paid. Furthermore, the conduct of the er a 21. applicant which attracts critical comment - and against which the making of contributions is an off-setting factor - is conduct addressed to Mr Greenland: the entering into an arrangement with him without reasonable expectation of payment and without revealing the fact of the existing bankruptcy. It may, perhaps, be said that there is at least a rough justice in allowing the fruits of an initiative to provide funds for the creditors to go to the victim of the bankrupt's commercial misconduct rather than to persons who were the victims of mere misfortune. It is not necessary for me to determine whether these arguments provide a sufficient reason for me to take a course inconsistent with the general principle that all creditors are to be treated equally. I have come to the conclusion that the Court should not accede to the invitation to make an order which is conditional upon payment of a sum of money by persons other than the applicant. My reason for that conclusion arises from consideration of the other two relevant factors: the interests of the public and commercial morality. The circumstances under which the debt to Mr Greenland was incurred reflect poorly upon the applicant. For Mr Shepherd to negotiate the purchase of the prime advertising position on the boat under circumstances where he was likely to be unable to pay the debt and without disclosing the fact that he was an undischarged bankrupt was conduct offending against accepted standards of common honesty. The first element ae ae Der Cea a ae es Me ae ee ee on ee 8 ee ee 22. of that conduct, namely the contracting of a debt provable in bankruptcy by the applicant without his having at that time any reasonable expectation of payment is behaviour which disqualifies the applicant from an immediate discharge; s.150(5) requires either a refusal of the application or a suspension of the order for discharge. The proposal put to the Court involves the possibility of the discharge becoming effective not later than Friday next. It would, no doubt, be possible to suspend the operation of the discharge for a nominal period but this would defeat the intent of s.150(5). I think that the faithful application of the sub-section requires, at least, the suspension of an order for a significant period. The second aspect of the matter is that acceptance of this proposal involves the Court granting, in effect upon demand, a discharge to a bankrupt against whose conduct serious criticism may properly be made and who has failed to exercise his capacity to make amends. In his evidence Mr Shepherd frankly said that he was 'quite glad' that he had "not been able" to make a contribution to his second estate 'because of what they have done to me'. I do not think that it is conducive to commercial morality to encourage the notion that a person guilty of the conduct found in this case and with such an attitude to his responsibilities is able to procure a discharge on demand. An order of discharge must be earned; 1t should not be allowed to be ee ene cer ree" eA tae a iets Ceti na ee a Pe et et mA Nt ry et ne Pa me mee tae Renate 23. bought. There ought to be no order for discharge in the present case unless and until the applicant has demonstrated, by significant periodic payments out of his own resources, a recognition of the inappropriateness of his conduct in incurring the debt and of his responsibility to make some amends by contributions to his estate. The view I take has two disadvantages. The first is that it denies any immediate prospect of Mr Greenland being paid the money which is owing to him. This is regrettable but I think that the public interest I have mentioned must be given priority. Secondly, it appears that the practical result of my decision will be to exclude Mr Shepherd from the forthcoming mayoral ballot. To that extent the choice available to the electors will be reduced. However, the exclusion is a result of the application of Queensland legislation which reflects the view that undischarged bankrupts are not appropriate candidates for office. To grant an immediate discharge to a person who would not otherwise qualify for such an order merely to avoid the consequences of that legislation would circumvent the policy upon which it is based. The objector has made out his grounds of opposition. He should have an order for his costs. I express 24. i the view that, in the absence of supervening new circumstances, those costs should be paid before any order for discharge from bankruptcy is made. I certify that this and the twenty three (23) t preceding pages are a true copy of 'the Reasons for Judgement herein of his Honour Mr Justice Wilcox. Associate Kaui Dalene ~~" Date {3- ar eS