CATCHWORDS Bankruptcy - application for discharge prior to expiration of three years from date of bankruptcy - principles which quide Court in dealing with such an application - undertakings and imposition of conditions. Bankruptcy Act 1966, ss. 149, 150. RE: HERBERT WANDER KERSTEN No. 684 of 1984/2 Coram: Sheppard J. Date : 11 March 1986 Place: Sydney acceptance of a a no gener ae OTTO IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION ) ) ) ) No. 684 of 1984/2 BANKRUPTCY DIVISION OF THE ) ) ) STATE OF VICTORIA RE:__ HERBERT WANDER KERSTEN A Bankrupt MINUTES OF ORDER JUDGE MAKING ORDER: Sheppard J. DATE OF ORDER : 11 December 1985 WHERE MADE : Melbourne THE COURT ORDERS THAT: ~- 1. An order of discharge be made. 2. The operation of the order be suspended until 18 December 1985. 3. The order be made upon the following conditions:- (a) that the bankrupt pay to the Official Receiver for the benefit of his creditors 21 monthly payments of $1,000, the first payment to be made on 18 February 1986 and the last on 18 October 1987; (b) that the bankrupt will not, and undertakes to the Court that he will not, until after 7 September 1988 (i) engage in business | on his own account or in oe 7 - . aia iota Bieta : 2. partnership with any other person: (ii) be a director of any company; (iii) become the employee or aqent of any business. partnership or company in which he, his wife or anv relative has directly or indirectly any interest of whatsoever kind or nature. 4. There be liberty to the bankrupt to apply, on seven days' notice toa the Official Receiver. to be released from compliance with any of the above conditions or released from any of the terms of the undertaking given to the Court. NOTE: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules. ton erp pane pregame mare, © ba rae i ha wee Se tn epee ope sere ro ee eee cs ty BANKRUPTCY ACT 1966 IN THE FEDERAL COURT OF AUSTRALTA GENERAL DIVISION BANKRUPTCY DIVISION OF THE ) ) ) ) No. 684 of 1984/2 ) } ) STATE OF VICTORIA RE: HERBERT WANDER KERSTEN A Bankrupt CORAM: SHEPPARD J. DATE : 11 MARCH 1986 REASONS FOR JUDGMENT HIS HONOUR: On 11 December 1985 I made an order of discharge in this matter. The order was suspended until 18 December 1985 and was made on certain conditions. I said that I would publish ny reasons for making the order later. What follows are those reasons. On 7 September 1984 Herbert Wander Kersten ("the bankrupt") and his former wife, Gayle Christine Kersten, were made bankrupt pursuant to the provisions of s. 57 of the Bankruptcy Act 1966 ("the Act") upon their own petition. No application for discharge was made by Mrs. Kersten. The only asset disclosed by the bankrupt was the sum of $25 in cash. Mrs. Kersten disclosed ct w a - on oe A erg Sr i peeree ono if Soe rr i "* s t - ron te hn . . assets consisting of the sum of $20 in cash and clothes anda sewing machine which were said to be worth $150. By reason of the provisions of sub-sec. 116(2) of the Act. only the cash would have been available to creditors. In their joint statement of affairs the Kerstens disclosed 12 unsecured creditors for amounts totalling $153,264. Seven of the creditors were owed a sum totalling $129,289 in respect of personal quarantees qiven in respect of the debts of a company. Herbert Haller and Associates Pty Limited. Another creditor was owed a sum totalling $12,457 in respect of moneys due under a quarantee and for a personal loan. Three creditors were owed $6,446 in respect of credit card transactions and one creditor was owed $5,072 for money lent. The debtors also disclosed one partly secured creditor, namely the A.N.Z. Banking Group Limited in respect of overdraft and commercial bill facilities. The unsecured indebtedness was said to amount to $78,344. There were also disclosed a number of contingent creditors who were, according to the Official Receiver, likely to prove in the estate. The separate indebtednesses of the Kerstens were not, when compared with their joint indebtedness, siqnificant. For present purposes it is enough to say that there was a total indebtedness to unsecured creditors of over $200,000. No more than $195 was brought to the credit of the estate. At the time of the hearing of the application no public examination of either of the debtors had been held. This was not ae . rn because the Official Receiver did not think that such examinations should be held; it was due entirely to his inability to bring the examinations on for hearing within the time which had elapsed. The Official Receiver's report filed in relation to the application reported an adverse matter pursuant to sub-sec. 150(6) of the Act. namely that the bankrupt had contracted debts without expectation of repayment. The report indicated that the application for discharge would be opposed by the Official Receiver. However, the bankrupt filed an affidavit on the morning of the hearing. Having considered the affidavit. the Official Receiver informed the Court that his opposition to the application was withdrawn and that he no longer reported the matter pursuant to sub-sec. 150(6) of the Act. The facts of the matter appear to be as follows. In February 1978, the bankrupt commenced business as a sole trader under the name of Herbert Haller and Associates. He operated as a finance broker from an office at 493 Riversdale Road, Camberwell. in the State of Victoria. The bankrupt said that his initial capital was $1700 which he obtained from the sale of household furniture. He then had two years experience in commercial finance, having worked part-time in that field while studying law. The bankrupt said that inthe first year of operations his turnover was $30,000. Py % oe ere ey way ae spe, Seto pom: L - 4 ae he Taye res = y i are of ars nt neg oe re ere pr pon me es ne - 4 py T % 7 a 7 Tot * - at . 4, -- wh ome be om nee oa or On 20 June 1978 a company, Culveden Investments Ptv Limited, was incorporated to act as trustee of the Herbert Wander Kersten Family Settlement which had acquired the business of Herbert Haller and Associates. The bankrupt and his former wife were directors and shareholders of the company. They 'were also the primary beneficiaries of the Family Settlement. On 25 July 1978 'the name of the company was changed to Herbert Haller and Associates Pty Limited. It provided clients with assistance in raising finance and charged a commission of between 1 and 1 1/2 per cent on the principal of the loans negotiated by it. Because of the trust the company was a trading trustee company; cf. Re Enhill Pty Limited £19831 V.R. 561. In 1980 the company moved to 500 Collins Street, Melbourne, in order to qenerate more business by attracting larger customers. It leased one floor from the accounting firm of Ernst & Whinney at a weekly rental of $1280. The floor space was divided, and along with office furniture, was sublet to various businesses, not associated with the company. In order properly to furnish the office the company entered into a number of lease agreements which were personally quaranteed by the bankrupt and his former wife. The bankrupt said that the company over-committed itself in respect of the lease agreements. It had expected to make a small profit from the subletting of part of the premises in the first vear and anticipated substantial returns in the second and third brs aptabed deanhaeic yanmar ated rar eee = =F Z epee peer fey ee a7 . 5 H a'n me ott ge ees t - » : . - 4 5. years as the rental charaqes were increased. However, it appears from the affidavit sworn by the bankrupt on the morning of the hearing that this, whilst it may have been a contributing factor to the bankruptcy, was not the principal cause of it. One of the matters investiqated by the Official Receiver was a list of assets qiven him by a creditor. He was informed that the list had been qiven the creditor on 9 November 1982 in order to reassure him that his debt would eventually be paid. The assets shown on the list totalled $244,000. The most significant amount in the list was the sum of $150,000 which was said to be the value.of the shares held by the bankrupt and his wife in the company. Other assets included a baby grand piano, land in New South Wales, antiques, jewellery, a law library (said to be worth $14,000), oil paintings, an interest bearing deposit said to amount to $8,300 and some photographic equipment. The Official Receiver's investiaqation into these assets was not complete at the time the hearing of the application beqan. He said, however, that it would appear that the value of the shares had been overstated. The company was wound up on 24 June 1983 and is insolvent. One needs to be careful not to make a judgment about the value of the Kerstens' shares in the company in November 1982 with the aid of hindsight. Nevertheless, an examination of the accounts of the company and evidence given by its accountant and the bankrupt satisfied me that the value of the shares was arossly overstated "aro TOTS rn ae a " an Ling = Saleer ane wee Oe eres re ree mse To in November 1982 with the consequence that the list of assets was plainly misleading. The evidence of the bankrupt was that all the other assets listed had been either realized and the proceeds spent on living expenses or made over to creditors in order to satisfy their claims. He said that at the date of the bankruptcy nothing was left. For a time I was in two minds as to whether to accept this evidence. However, having considered what the bankrupt had to say in evidence and submissions made on his behalf by his counsel, I reached the conclusion that I should do so. In his affidavit the bankrupt claimed that at the end of 1982 the company was trading profitably. It then drew the commercial bill referred to by the Official Receiver upon the A.N.Z. Banking Group Limited. According to the bankrupt, the company expected no difficulty in paying this sum in the early part of 1983. He said that the bill was drawn in anticipation of the company receiving a brokerage fee of $65,000 from a company. Zedeck Nominees Pty Limited, in or about March 1983. The bankrupt said that the company had procured substantial finance for Zedeck Nominees Pty Limited and anticipated receiving $65,000 on settlement of the loans. However, in early 1983, one of the subsidiaries of Zedeck Nominees Pty Limited, Kew Star Motors Pty Limited, went into liquidation. The bankrupt said that this was totally unexpected and caused substantial difficulties for Zedeck Nominees Pty Limited, which itself ultimately went into liquidation. One of the consequences of these liquidations was fore ey oe t omy ney ' a ' ote eos tineticas pemmede aie) fy Ry won "oT ewe pee ae that the lenders of the funds which the company had arranged for Zedeck Nominees Pty Limited to borrow decided not to proceed with the transaction. Thus the brokerage of $65,000 did not become payable. Another debt owing to the company was said to be the sum of $44,000 owed by Rabsquare Pty Limited for commission. The debt was disputed. The company received advice from senior counsel to institute proceedings for the recovery of the moneys in the Supreme Court of Victoria. The liquidation of the company intervened and, for reasons Which need not be gone into, the liquidator decided not to pursue proceedings for the recovery of the amount. The bankrupt swore in his affidavit that at the time the commercial bill was drawn on the bank he had no reason to believe that the company would be unable to meet its commitments. Another factor which, according to the bankrupt, contributed to the company's financial failure arose from the fact thata major source of finance which the company obtained for its clients was from Trustees, Executors and Agency Company Limited. That company went into liquidation in May 1983. As a consequence, so the bankrupt said, a mator source of the company's finance disappeared. The company's ability to trade at its previous levels was adversely affected. ~F . + eaaheneihie sate tale eat ---~——y . wh oe + mee = Seon , a 1. D Le Tn en cn rege ge ee ee he The bankrupt claimed that it was as a result of all these matters that the company went into liquidation on 24 June 1983 with a deficiency of $161,000. Since his bankruptcy the bankrupt has had employment ina number of positions. some as a salesman selling second hand cars. He has not had continuous employment and at times has been out of work. Shortly before the hearing he was offered a position with a finance undertaking, Capel Court Investment Bank. A letter offering the position to the bankrupt was in evidence. It was dated 22 October 1985 and offered the bankrupt "a position as Senior Manager in the Melbourne office of Capel Court". The letter said that the bankrupt would be a member of "the Specialised Finance Group" with a special focus on real estate or property financing. The total remuneration offered was $45.000 per annum. The emplovment was offered as from 11 November 1985. In a further letter dated 25 October 1985 from Capel Court the bankrupt was informed that, in order to discharge his duties with the company, he would require licences under "the Finance Brokers Act and the Securities Industry (Victoria) Code". Capel Court had been advised that the licences could not be held by an undischarged bankrupt. The letter said that, for that reason, the position was no lonaer available to the bankrupt. However, the bankrupt was subsequently informed by Mr. Kirk of Capel Court that the job offer would remain open, but subject to his being able to obtain a discharge from his bankruptcy. —T 43 4 —- a1 sam oy That is the reason whv the bankrupt made the application ata time which. it has to be said, was seemingly premature, bearing in mind the totality of the circumstances of the case. The bankrupt said that he expected to receive approximately $27,000 per year after tax once his employment commenced. He made an offer to the Official Receiver to pay to him, for the benefit of his creditors, the sum of $1,000 per month for the period from the commencement of his employment until the date when his bankruptcy would normally have come to anend by effiluxion of time pursuant to s. 149 of the Act, that is in September 1987. It was the Official Receiver's acceptance of the bankrupt's explanation of why he had not contracted debts which he could not reasonably expect to pay in November 1982 and the making of the offer which induced the Official Receiver to withdraw his opposition to the application. Although each of the creditors was qiven the usual notice of the application, none appeared to oppose it and none communicated any objection to it to the Official Receiver. It was in these circumstances that the matter was presented by counsel for the bankrupt and by the Official Receiver as one which would not occupy the Court's time for very long and which could really be dealt with as a consent matter. Notwithstanding the force of the considerations which had moved the Official Receiver to adopt this approach, I was of opinion that the Court 10. . itself had an obliaation to make some investigation of the matter and to determine whether or not the case was properly one for an order of discharge. Two things particularly concerned me. These were voiced to counsel for the bankrupt and to the Official Receiver. They were:- 1. It seemed fundamentally wrong to make an order discharging a bankrupt whose debts were in excess of $200,000 and who had brought less than $250 to the credit of his estate when he had been bankrupt for only 15 months. In ordinary circumstances the public interest would require the statutory period of three years to run before there could be a discharge, especially in the case of a debtor who had become bankrupt as a result of his trading activities. To permit a discharge so soon after bankruptcy would tend to encourage others to think that bankruptcy was of little moment or significance in society. 2. For whatever reason the bankrupt's commercial ventures had failed badly. If he were discharged from bankruptcy. there was a risk that the bankrupt might re-enter commerce immediately with consequent risk both to himself and those with whom he midht deal. In order to overcome the second of the matters above stated, counsel for the bankrupt, during the course of the hearing, obtained instructions to offer an undertaking to the Court which would prevent the bankrupt enaaging in business on his own account or through companies or partnerships in which he had an tasty ~ wee wee ROTA an ern ere me eee ee ee ee ae a ese ll. interest. at least for the balance of the period for which the bankrupt would have remained undischarged had this application not been made. It will have been observed that the bulk of the' indebtedness incurred by the bankrupt was not indebtedness for which he was primarilv liable. It was the company which was the principal debtor. In a case of this kind .it is sometimes said that the position of a bankrupt, who has been made bankrupt because he has been called upon pursuant to quarantees qiven in respect of a company's indebtedness, is different from a case in which the bankrupt himself is the primary debtor. This was not sucha case. Here the company. rather than the Kerstens themselves, was made the trustee as much for reasons associated with the minimization of income tax as for any others. The company had a paid up capital of $2. Plainly enough the bankrupt could not have expected credit to be given the company unless he and his wife had been prepared to quarantee its debts. That would be an ordinary and everyday requirement of most financial institutions, whether banks or otherwise. Because of the nature of the business in which the company was engaged, the bankrupt would have been in a position, perhaps more so than many other members of the community. to know that that would be the case when the company took over the business. It followed. in my opinion, that the bankrupts was to be treated no differently because he was a quarantor rather than a primary debtor. ee A te ts tals Seah hecentor oath enened aad it on ea ees q aban ware rere ee eee 12. The application was made pursuant to sub-sec. 150(1) of the Act. So far as it is material, the sub-section provides that a bankrupt may apply to the Court for an order of discharge at any time after his public examination has been concluded or the expiration of the period of 12 months commencing on the date of the bankruptcy. As mentioned, the bankrupt has not been publicly examined pursuant to s. 69 of the Act. That was not because the Official Receiver thought that this was not a proper case for a public examination: rather it was because the Official Receiver, due to lack of resources, had not had time, before the application was made, to arrange for the public examination to be held. It followed that the fact that a public examination had not been held was not itself a bar to the application being made. The remaining provisions of s. 150 which are of relevance to this application are sub-secs. (3), (5), (6) and (9). Those sub-sections, with the exception of sub-sec. (6), to which I shall refer in a moment, are as follows:- "150(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. (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 oem om ia gre Sets eee 13. the operation of the order as the Court thinks proper, either unconditionally or subject to conditions. (9) Where none of the matters specified in sub-section (6) is established, the Court may (a) refuse to make an order of discharae; (b) make an order of discharge; or (c) make an order of discharge but suspend the operation of the order as the Court thinks proper, either unconditionally or subject to conditions". Sub-section 150(6) specifies six classes of matters, the establishment of any one of which will oblige the Court to act pursuant to sub-sec. (5). As earlier mentioned, the Official Receiver in his report oriqinally specified a matter pursuant to sub~sec. (6), namely, that the bankrupt had contracted a debt provable in the bankruptcy without having at the time of contracting it any reasonable or probable arounds of expectation of being able to pay it after taking into consideration his other business liabilities. Because the Official Receiver accepted the bankrupt's explanation qiven in his affidavit and oral evidence of how the debt came to be contracted and his evidence of his then expectations, the Official Receiver no longer sought to specifv the matter and withdrew his opposition to the application. It is true that that did not conclude the question - of the applicability of sub-sec. 150(6) and thus sub-sec. 150(5). The matter was still one for the Court to consider. But froma practical point of view it would be very difficult in most cases sore pom ore of toad ee LE y ae ee tm wee vps ores em ree vor att . ery 14. for the Court to find any of the matters specified in sub-sec. (6) established in the absence of any case for such a finding being put by any party before it. In the result the directly relevant sub-sections thus became sub-secs. (3) and (9). It is to be observed that sub-sec. (9) does not provide for the imposition of conditions if an order of discharge is made to operate forthwith, but does provide for their imposition where an order of discharge is made. but suspended. Formerly the Court, except when it acted pursuant to sub-sec. (5), had no power to impose conditions at all; see Hunter v. Official Receiver in Bankruptcy (1980) 50 F.L.R. 168. However, the Act was amended by the Bankruptcy Amendment Act 1980 and now enables conditions to be imposed where there is a suspension of the operation of an order pursuant to sub-sec. 150(9). It was the submission of counsel for the bankrupt that there should be a short period of suspension, the imposition of a condition that the bankrupt pay to the Official Receiver for the benefit of his estate the sum of $1,000 per month up to and including the month of September 1987, that being the month in which the bankrupt might have expected to be discharged from bankruptcy by force of s. 149 of the Act. and a condition that he undertake to the Court not to engage in any commercial or trading activity on his own account or as a director, partner or employee of a partnership or company in which he, his wife (assuming he Sear ae . > a -ger- sa Ww ts Fone ve go ee rer 5 tonto me ve pects errs wry ¥ <p 15. were to remarry) or any relative had an interest. It is next necessary to say something of the principles which guided me in reaching the conclusion that the order should be made. I should explain that I would not have thought it necessary to say very much about these, had it not been for submissions made bv the Official Receiver which suaqgested that two recent decisions of fudges of this Court had changed, at least to a degree, the approach which the Court had adopted in earlier cases. The two decisions were those of Toohey J. in Re Benda (unreported, 26 April 1985) and Woodward J. in Re Maher (unreported, 21 August 1985). In Re Reilley; Ex parte The Debtor (1979) 36 F.L.R. 268 Lockhart J. said (p. 278):- "In considering whether a 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. In the exercise of its discretion the court must also consider the conduct of the bankrupt relevant to his bankruptcy. See Re Prince; Ex parte The Bankrupt {1961) 19 A.B.C. 39; Re John Maxwell Gray (1960) 19 A.B.C. 29; Re Mallan (1975) 25 F.L.R. 20. In my opinion, the principles expressed in the authorities apply to an application for discharge where none of the matters specified in sub-s. (6) is established", The last sentence is, of course, important in establishing that the considerations mentioned by his Honour apply in cases such as te hos sor SION GN oot 16. the present where the principal sub-sections are sub-secs. (3) and (9). In other words they are not limited to cases which arise under sub-sec. (5) of s. 150. The decisions in Re Prince and Re Gray were decisions, not under the present Act, but under the comparable provisions of the Bankruptcy Act 1924. What his Honour made clear was that the principles which had been established under that Act continued to apply when the Bankruptcy Act 1966 came into force. Lockhart J. followed Re Reilly in Re Harding (1981) 57 F.L.R. 320; see p. 332. In doing so he referred to two decisions of McGregor J. given after the decision in Re Reilly. These were Re Weiss (unreported, 3 September 1980) and Re Kolomy (1981) 56 F.UL.R. 157. In both cases McGregor J. adopted what Lockhart J. had said. To my knowledge the approach of Lockhart J. has been followed by a number of judges of this Court in innumerable cases most of which are unreported. I myself have followed it ona number of occasions. In consequence it came as something of a surprise to me to hear a submission from the Official Receiver that the decisions in Re Benda and Re Maher had brought about some change of approach in the Court's attitude to applications for discharge. In Re Benda Toohey J. said that, in the absence of one of the matters specified in sub-sec. 150(6), the Court has a_ broad discretion to make or refuse an order of discharge before the ae Spo eye ae ge te gt : Ts H Lf wegen 17. expiration of three years. He added that nothing in the section pointed to the need for an applicant to establish special circumstances or the like. He went on to sav that, even in the absence of the considerations mentioned in sub-sec. 150{6) or the lack of obiection by creditors, the Court is obliged to look at all the circumstances including the conduct of the bankrupt and decide whether an early discharge is justified. Later his Honour said:- "An application for discharge from bankruptcy involves considerations wider than the interests of the bankrupt and his creditors. But the absence of any opposition from creditors to the application is a significant consideration. The Official Receiver makes no complaint of the bankrupt's conduct other than as mentioned earlier. It is also sianificant that since his bankruptcy the bankrupt has made 50 or s0 applications for employment. These have been unsuccessful and it is reasonable to conclude that the bankrupt's status has played some part in his lack of success. He is yreceivinda unemployment benefits. He is divorced and has 3 children. He meets the cost of educating the two eldest children from money borrowed from his mother. In all the circumstances I see nothing to be qained by refusing the application for discharge. The creditors will qain nothing and the bankrupt's prospects of rehabilitation will he stultified. Notwithstanding that the bankrupt contracted substantial liabilities, the evidence does not suqgest that he entered into ventures that were doomed to failure or that he acted rashly in respect of his financial affairs. There is nothing in his conduct or in the circumstances of this bankruptcy to warrant attaching conditions to any order of discharge". In Re Maher Woodward J. was concerned to deal with a Te re rom Ssasmenaehy mmiaahieicer talke'siiiaman-anaiior allie hatin bie sebahac ciao tin an ar ek Sane rr ee . ge er net as . be er eye SEM te on en ee aon _ aah 18. submission made by the Trustee that s. 149 of the Act creates a statutory bar to the discharge of an applicant's bankruptcy under s. 150 unless the applicant can show "special merit" in his application. His Honour said that the Trustee submitted in effect that the scheme of the Act created a presumption that in the absence of the applicant proving special circumstances or "cogent reasons", a bankrupt to whose discharge there was no objection should be discharged by- operation of law under s. 149 and not otherwise. His Honour rejected the submission, but in doing so said:- "An application for discharge from bankruptcy is never treated lightly by the Court. As with the aranting of a sequestration order, an application for discharge involves looking beyond the interests of the applicant and his or her creditors to considering both the interests of the public and commercial morality, (see Re Mallan (1975) 6 A.L.R. 161, Re Harding (1981) 57 F.L.R. 320 and Re Reilly, at p. 365). The trustee reports to the Court on an application and may appear at the hearing of the application to represent the public interest. In making a decision under s. 150(9), the Court has a wide, unfettered discretion (see Re Harding, and Re Gianacas (1983) 48 A.L.R. 537)". Woodward J. referred to what Toohey J. had said in Re Benda and went on to say:- "In exercising its discretion under sub-s. (9) the Court is not restricted to consideration of Matters of the type listed in sub-s. (6), although these of course will be relevant. Other relevant circumstances that may be taken into account include such diverse matters as: the age of the applicant (Re Mallan), the magnitude of the deficiency in the estate (Re Harding), the TT woe 8 ' a) 19, number of creditors (Re Benda and Re Reilly), the objections to the application of. or absence of objections from, creditors (Re Gianacas and Re Benda), the applicant's "culpability"" in entering into the original debts (Re Benda), his present domestic, social and financial circumstances, whether he is in employment or whether his bankruptcy is affecting his chances of obtaining employment (Re Gianacas and Re Benda), any contribution he has made to the estate since its sequestration, his qeneral conduct in dealing with the trustee, and even the effect of the social stigma of bankruptcy. The above list is by no means an exhaustive one, and each application must, of course, be viewed in the light of its own circumstances". His Honour then dealt with the particular facts of the matter before him and came to the conclusion that, in the exercise of his discretion. he should make an order of discharge. Having considered the dicta in the two judaments to which I have referred, I am at a loss to understand in what way they reveal anv inconsistency with the earlier approaches of the Court as indicated in the decisions of Re Reilly and those which followed it. I would respectfully agree with what both Toohey J. and Woodward J. said in Re Benda and in Re Maher. But there is nothing in either judgment to suggest that the matters mentioned by Lockhart J. in Re Reilly no longer applied. Woodward J. referred to Re Reilly and indicated his agreement with it. It ought to be understood that applications for discharge involve exercises of discretion by the judges before whom they come. Obviously the facts of a given matter will vary infinitely Y yp agdcees Th TEM Cen ae 20. . from those of other matters. No quidance whatever is to be obtained by looking at the way in which judges dealt with the facts of earlier cases. The only relevance of looking at earlier decisions is to ascertain whether they lay down any principles or guidelines according to which a discretion is to be exercised. Once one decides upon the principles, one must have regard to the instant facts and determine what, in accordance with the relevant principles, is the appropriate decision in that case. This case presented the Court with a most difficult problem. Its task was not assisted, at least in the initial stages, bv what appeared to be the agreement of the parties that there should be an order made, in effect. by consent. This was not something I was prepared to accept and in the result the matter was the subject of a hearing that occupied some hours and involved a lenathy investigation of the bankrupt's affairs. [In reaching my conclusion that the application should, after all, be aranted, I took into account a variety of factors, some favourable and some unfavourable to the bankrupt. The following list is not exhaustive but it specifies the principal matters to which I gave attention:- (a) At the time of his bankruptcy the bankrupt was 33 vears of age. He had little previous business experience when he commenced business on his own account in 1978 at the age of 27. He began a venture which was, for a time, moderately successful. But it seemed to me that he was substantially under-capitalized and soon began to overreach himself. The ayer oe a ' (b) 21. immediate causes of the bankruptcy were undoubtedly the failure of the company which was in turn precipitated by the failure of Zedeck Nominees Pty Limited and the resistance of Rabsquare Pty Limited to paving the sum of $44,000 which the bankrupt's company claimed from it. Additionally there were the failure of Trustees, Executors and Agency Company Limited and the fact that his venture into leased office space was not nearly as successful as he had thought it would be. It may be that the bankrupt was unfortunate that all these factors operated together. On the other hand, the financial structure of the company was simplv too brittle to withstand problems which, if it had not been so short of capital, might have proved troublesome but would not have spelt disaster. My observation of the bankrupt in the witness box was that he was aman who was far too optimistic about his business ventures. He revealed a confidence which his age and lack of experience did not justify. Scattered throughout his answers are glib phrases, many of which come from the jarqon of the financial world. I think there were occasions when he himself did not understand the implications of what he was saying. I regret to say that at times he showed a complete absence of contrition for the aqrave losses that had come about as a result of his commercial activities. Indeed, at least at the commencement of his evidence he seemed to me to resent questioning and to have thought that coming to Court was only a formality. Later there was evidence of some contrition and I do not now think that he would labour under (ec) (d) Ce) 22. ° the misapprehension under which he was when the hearing commenced. The matters referred to in the previous paragraphs led me to the conclusion that no order of discharge should be made unless there were imposed conditions which would operate to prevent the bankrupt from being engaged, directly or indirectiv. in business himself for a substantial period. A further factor which inclined me against the application when the hearing commenced was the fact that no public examination had been held. The fact that sub-sec. 150(1) permits an application for discharge to be made after the expiration of twelve months from the date of the bankruptcy, notwithstanding that no such examination has been held, does not oblige the Court to qive effect to the application. It merely enables the application to be made. The present case was crying out for investigation and desirably a public examination should have been held. However, as the matter progressed the bankrupt was in effect examined as to his property, dealings and affairs. The accounts of the company were produced. The accountant who had charge of preparing the accounts was called and it seemed to me, as the Official Receiver submitted, that little was to be qained, once the hearing had concluded, by taking the view that a public examination should be held. It was not likely that any further information would have been obtained if it had been. One discreditable matter that was revealed in the course of this examination was the bankrupt''s attitude to his taxation on '. we we Ae ww cc rn 4, (f) 23. affairs. Not to put too fine a point on it. it is plain that he buried a aqood deal of personal expenditure in expenditure which was incurred by the company under headings in its accounts which suggested that the expenditure was entirely for other purposes. The effect of this was that the amount of income which he and his family earned personally was understated in the company's accounts. However. although I took a serious view of this conduct, I did not feel that I ought allow it to play a decisive role in the outcome, principally because it is my belief that the sort of practice that was engaged in by the bankrupt and his company was, at least at the time in question, a fairly common one in some commercial circles. No doubt it was the bankrupt's observation of what others did in similar circumstances that led him to do the same. I see no purpose in letting him be the scapeqoat for a svstem which has for many years pervaded some parts of the commercial life of the community. But I feel bound to say that it was in relation to this evidence that he demonstrated a dearee of qlibness, and also resentment at being asked questions, which I found quite unacceptable. Despite the criticisms I have made of the bankrupt in the earlier paragraphs, I am satisfied that he has real commercial ability in the financial field. But it needs quidance and harnessing. He is in need of oversight. The position he has been offered with Capel Court will provide that opportunity and may qo a substantial way to ensuring his nn ia TO z . ye ae " amt 24. commercial rehabilitation. If he were not to be discharged, the position would not be available to him. at least until September 1987, and might not then be available so that the opportunity would be lost. (a) He was prepared to aive the undertaking to 'which I have referred not to engage in business on his own account. The giving of that undertaking removed some of my anxieties concerning his future activities. (h) No creditor opposed the application. (i) The offer to contribute $1,000 per month until September 1987 was undoubtedly a qenerous one. Without it the creditors would have received nothing. As it is, they will receive little but the qesture is not an empty one. It went a long way to demonstrate that the bankrupt had decided to learn by his experience. . It was in those circumstances that I decided, not without much hesitation, to accede to the application, but to do so by suspending it for a short period and imposing as a condition of it the conditions to which I have referred, namely, the pavment of the $1,000 per month and the acceptance of the undertaking that he would not trade on his own account. After discussion, the period of that undertaking was increased so that it will expire in September 1988 rather than September 1987. The bankrupt gave the undertaking personally to the Court. I would not accept an undertaking that he pay the sum of ar Lee + t. AEN TT TAT YT a tn © eres = "NE amen "yl : tiey raTP TTA i ' 25. $1,000 per month. Events might not go as he hopes they will and he ought not to have the possibility of prison threatening him should he be unable to make the payments. If he does not make the payments, the Official Receiver may proceed against him to recover them. I provided in the orders for leave to the bankrupt to apply to have any of the conditions which I have imposed varied. That was not intended to encourage him to make any such application; it was intended only as a_ safequard in the event that the future did not turn out as the parties expected. It remains to say that this case, like Re Benda and Re Maher is yet another in which the Court thought it appropriate to make an order of discharaqe despite the existence.of circumstances suggesting that the bankrupt should remain undischarged for the period of three vears provided for in s. 149. As I said in the course of the arqument, it is probably the results of cases, rather than what judges have actually said, that led the Official Receiver here to think there had been a change in the Court's approach to applications of this kind. I emphasize that this is not the case. Each of the cases required a proper investigation and anxious consideration by the Court. The fact that in the exercise of its discretion in each case it reached the conclusion that the application for discharge should be qranted, provides no indication that applications for discharge are treated in a perfunctory or formal way. As Woodward J. said in Re Maher, an leet el ee aa = --- —. 26. application for discharge from bankruptcy is never treated lightly by the Court. Even in the plainest case it would be quite wrong for applicants. creditors or trustees in bankruptcy to assume that the Court will itself not make a proper investigation of the matter or that it will accede to an t application unless, in all the circumstances, it appears proper to do so. \ certify that this and the 2S preceding pages are a true copy of the reasons for Judgment herein of The Honourable Mr Justice Sheppard. / , / /* : ~ Associats Dated / "VARCH / 786 = apn ae ew oll .