t iW B34 " WaATCHNUPDS Bankruptcy - application tor discharge pursuant to s.l5u of the Bankruptcy Act 1968; - conduct of bankrupt during the bankruptcy - factors : to be taken into account when ' considering a discharge, - policy ot the law. : Bankruptcy Act 1566 - ss.ldy, 150. kE: ALFRED YEHISKEL ZION Ba PARTE: THE BANKRUPT No. 663 of 1373 Smithers J, 26 September 1986 Melbourne. > Np Li THE FEDERAL COURT uF AUSTRALTA GENERAL DIVIS LUN BANKRUPTCY DISTRICT OF THE STATE OF VICTORIA a ~l NO. 63 uF Ly7y RE: ALFRED YEHISKEL alu EA PARTE: THE BANKRUPT Judge Making Order: smithers J. Date of order: =o September 1986 bihere Made: Melbourne MINUTE OF ORDER UPON the applicant undertaking to the Court: 4a? that he will hold as from Tuesday 23 September 1986 whatever interest he has in the Tucson land and in any transaction concerning the same tor the Official Trustee and to give reasonable assistance to the official Receiver as required by the official Trustee including the execution ot any neécessary dacuments for the realisation of that interest; tbs that he will refrain frrom seeking the repayment to him of the sum of $16,747.30 already paid to the vutficial Trustee; that he will not accept appointment as a director of a company trom 3 vears from today, Friday 46 september 1386, THE COURT URDERS THAT: l. The application for discharge be granted. The applicant pay 60% of the taxed costs of the petitioning creditor including reserved costs and costs of transcript. The applicant to pay 50% of the taxed costs of the Officzal Trustee including reserved casts and costs of transcript. There be a stay on the payment ot costs of 5 months from this date. Liberty to apply to the applicant to apply for a further stay. Note: Settlement and entry of orders is dealt with in ~ Order 36 of the Federal Court Rules. IN THE FEDERAL COURT_OF AUSTRALIA GENERAL_DIVISTON NO. 663 OF 1979 BANKRUPTCY DISTRICT OF THE STATE OF _VICTORTA RE: ALFRED YEHISK EX PARTE: BANKRUPT te] oram: Smithers J. oO ate: 23 September 1986 \ REASONS FOR JUDGMENT Alfred Yehiskel Zion (the applicant) was made bankrupt on 6 September 1979, On the same day his wife Barbara Zion was also made bankrupt. The acts of bankruptcy were the signing by each of the husband and wife of authorities under 8.188 of the Bankruptcy Act 1966. Mrs. Zion was discharged from bankruptcy on 25 August 1983 by order of the Court, upon her undertaking to the Court that she would not be involved in any manner whatever directly or indirectly in any commercial business venture with or on behalf of her husband and unconditionally withdrawing all allegations of impropriety made by her or with which she had associated herself at any time against Chevron Hotel (Melbourne) Pty. Ltd. and HSP Nominees Pty. Ltd. and Mr. Emil Kornhauser or his family. On 26 September 1979 Mr. E.H. Niemann was appointed Trustee of the bankrupt estates but on 3 April 1981 the Official Trustee became appointed as his successor. There was a deficiency of assets against the estate of the applicant in the vicinity of $6,000,000. According to the report of the Official Trustee the causes of bankruptcy were failure of the applicant's corporate ventures. The sum of $154,808 has been brought to account as' the proceeds of assets in the estate. Proof of debts totalling $6,275,834 have been admitted by the Official Trustee. Secured debts to the Commercial Bank of Australia Ltd., and National Australia Bank totalled $867,000 after allowing for realization of the securities. Having regard to expenses incurred in the administration of the estate there is little prospect of a dividend. The bankrupt has been examined under s.69 of the Act, No further examination is to be sought. The application dated 30 September 1985 currently before the Court is made by Alfred Yehiskel Zion for discharge from his bankruptcy. It is made under s.150 of the Act. The bankrupt was not discharged at the expiration of three years from his bankruptcy because of an objection thereto by the Official Trustee, See 5.149(1). He was not discharged at the expiration of five years from the date of bankruptcy because on 26 October 1984 an order was made by this Court, upon the application of the petitioning creditor Chevron Hotel (Melbourne) Pty. Ltd., and HSP (Nominees) Pty. Ltd., that he not be discharged from bankruptcy by virtue of the provisions of ss.149(8) and (12) of the Act. That decision reflected the view that, on the materials then before the Court, a discharge should not be granted to the bankrupt except upon an application by him in which he established circumstances in which the Court might deem it appropriate that he should be discharged in accordance with the policy of the law. In my view it is the policy of the law that bankruptcy should in most cases come to an end at' three years and when there is an objection, at the end of five years from the decree for sequestration of the estate, but that in a case where public interest so requires the discharge may be delayed or made conditional according to the requirements of the public interest in the circumstances of the case. Public interest will require that a discharge be delayed or made conditional if the conduct revealed or the character of the bankrupt indicates that the return of the 4. bankrupt to the commercial world in full freedom might involve unacceptable risk to persons likely to be engaged in commercial relations with him in the future. In other words it is for the applicant to show that balancing the policy of the law in favour of the return to commercial life of a bankrupt against the dangers that might accrue to the public from full commercial capacity of the applicant it is appropriate that the discharge be granted. As was said by Woodward J. in Re Maher & Anor (1985) 61 ALR 592 at 598: "An application for discharge from bankruptcy 1s never treated lightly by the Court. As with the granting of a sequestration order, an application for discharge invoives looking beyond the interests of the applicant and his or her creditors to considering both the interests of the public and commercial morality." On the evidence relevant dangers are said to arise from various considerations: (a) that the bankruptcy arose from the undue use of corporate funds for private purposes, overborrowing for corporate ventures and an extravagant lifestyle. (b) that since his bankruptcy the bankrupt has engaged in improper conduct including: 5. (1) improper relationships, 1nvolving Misappropriation of monies of a business associate; (ii) misleading the Official Trustee as to the circumstances relating to land acquired by the bankrupt in America; (iii) making a false declaration in support of an application for legal aid; (iv) failing, with respect to the period after 1983 to disclose to the Commissioner of Taxation his receipts and expenditure relating to the land in America; (v) that the bankrupt's evidence in the s.69 examination and in this application is s0 fraught with inconsistencies and ambiguities that reliance cannot be placed upon his oath. As to (a) the relevant facts are set forth in the report of the Official Trustee dated 17 October 1985. No further material, has been placed before me by the applicant, the Official Receiver or the petitioning creditor who opposes this application. It appears from the Official Trustee's Report dated 17 October 1985, that: "The applicant 1s now 51 years of age. He resides in rented premises at 3 Rowallan Court, North Balwyn and is self-employed as a business consultant. As he was made bankrupt on 6 September 1979 he would have been discharged pursuant to sub-section 149(1) of the Bankruptcy Act 1966 on 7 September 1982 but for an objection lodged by the Official Trustee. The objection was lodged on the following grounds: '1. That the discharge of the bankrupt would prejudice the administration of his estate un that there are still assets to be realised within and outside this jurisdiction. 2. That the conduct of the bankrupt prior to the date of the bankruptcy was unsatisfactory in that he contributed to his deficiency by gambling. 3. That the conduct of the bankrupt prior to the date of bankruptcy was unsatisfactory in that the manipulation by him of companies under his control was a significant factor in the size of the deficiency of some millions of dollars in his estate.' The discharge of the applicant would have been brought about on 7 September 1984 by the lapsing of the objection had the petitioning creditor not made a successful application pursuant to sub~section 149(12). In a Notice to Creditors dated 27 July 1984 the creditors were informed of my reasons for not seeking to prolong the applicant's bankruptcy beyond five years, namely, (1) Mr. Zion's conduct since his affairs came under the control of the Official Trustee has been exemplary. (2) I have received advice from 2 out of a possible 35 creditors that they have no objection to his discharge from bankruptcy and from a further 5 that they are in favour of it. One creditor has advised me that 1t 1s not in favour of the dicharge. Rule 51A of the Bankruptcy Rules prescribes the matters to be considered when making an application under sub-section 149(12) of the Act. Those matters are relevant to the question before me in this application under s.150. Upon the petitioning creditor's application for the order that the bankrupt be not discharged under s.149 of the Act the grounds under the sub-section were set out in the affidavit of Mr. Nathan Kuperholz sworn on 24 August 1984. Between 1969 and 1979 the applicant acquired a corporate empire. From material that he has produced it has been established that in 1969, when aged thirty-five years he was a person of substance. In mid-1973 Zion embarked upon a_ share buying venture that, over the course of several years, was to place him in full control of Pizzey Ltd, a leathergoods merchant and toymaker, and leave him heavily in debt. He intitially acquired Pizzey Ltd. shares through Z-K Securities Ltd. (Z-K), a company that he once owned jointly with Mr. Kornhauser. Mr. Kornhauser, who controls the petitioning creditor Chevron Hotel (Melbourne) Pty. Ltd. subsequently withdrew from Z-K. Industrial Equity Ltd. was the lender of the funds' to Z-K and Zion guaranteed repayment of the loan of $565,000. By the date of bankruptcy the debt had been reduced to $216,765. One of the attractions of Pizzey Ltd. was that it controlled ten subsidiary companies in Australia and one in New Zealand. The takeover was completed in 1976, by which time Zion was heavily in debt, including $2.3 million to Mr. Kornhauser through his alter ego, the petitioning creditor. Although Zion companies were the borrowers Zion became liable by way of guarantee. Early in 1978 Zion commenced buying the shares of a Sydney retailer, Winns Ltd (Winns), and eventually acquired 93% of the issued scrip. The company was unprofitable when he commenced buying the shares and it went into receivership in the same year. He stated that the position of the company had been misrepresented to him by a person closely connected with its affairs. He accepted the information and advice in good faith. The venture ultimately proved disastrous. His acquisition of Winns was financed with borrowed funds and these included $205,000 from a private lender. Zion purchased through his company, Myford Investments Pty. Ltd., 65,000 Winns shares for $500,000 from Burns Philp and Co., of this amount, $350,000 was outstanding at the date of bankruptcy. The applicant's debt to the petitioning creditor was due to be.settled in December 1976. He did not have the funds and entered into prolonged negotiations in an attempt to compromise. He was unsuccessful and the matter was litigated in 1979. Judgment was entered against him and his wife in August of that year. On 16 August 1979 Zion and his wife signed an authority under s.188 of the Act in favour of Garry Thomas Bigmore, a solicitor. Mr. Bigmore arranged for a meeting of creditors which was held on 26 September 1979, However, on 23 August 1979 Zion, his wafe and one child left Australia. On 29 August 1979 an interim receiver of the applicant's property was appointed under the provisions of s.50 of the Act. On 6 September 1979 a sequestration order was made against Zion and his wife and on 26 September 1979 Ernest Harding Niemann was appointed by the creditors as trustee of the estate. Mr. Niemann was at the time the provisional liquidator of several companies that had been controlled by Zion. The following proofs of debt were lodged against the estate and were admitted by the Official Trustee : Name of Amount Year Debt Details Creditor $ Incurred WE Forest 25,000 1977 loan Burns Philp & Co. Ltd. 350,000 1978 guarantee of loan to Myford Investment Pty Ltd. Chevron Hotel 875,235 1975 guarantee of loan (Melbourne) P/L to Delajohn Holdings Pty. Ltd. Queensland Produce Export P/L (in Liquidation) M/L Investments P/L (in liquidation) National Australia Bank Julius Sefton Hoit Chevron Hotel (Melbourne) P/L HSP Nominees P/L CBC of Sydney Ltd (as it then was) CBA Ltd (as it then was) SEC Lindsay Park Stud P/L Clifford & Hilda Forrest Network Process Service M Jd Ward General Credits Ltd. N F Spielvogel Telecom 390,738 219,758 426,235 99,472 2,994,735 151,089 361,903 285,113 2,022 43,000 17,000 4,345 12,000 1,439 10, 1976/79 1976/79 1978/79 1975/76 1978/79 1975/78 1975/79 loans on various dates loans on various dates guarantees of loans to Pizzey Properties Pty Ltd and W Braithwaite Pty Ltd loan guarantee of loan to Plato Securities P/L loan guarantee of loans to M/L Investments P/L guarantee of loans to River Oaks Property Investments P/L electricity supplied Horse training fees loan service of process loan Guarantee of loan to Pizzey Properties P/L loan telephone li. Citicorp Aust Ltd 16,668 1979 deficiency lease motor vehicle $ 6,275,834 It was the conclusion of the Official Trustee that the cause of bankruptcy was the failure of the applicant's corporate ventures through over-reliance on borrowed capital. Because of the Court's finding at the hearing of the sub-s.149(12) application to the effect that the applicant had a case to answer in respect of unsatisfactory conduct, the Official Trustee does not support this application. However, it also does not oppose it. In the Trustee's report dated 19 April 1982 the applicant's conduct after the Official Trustee became trustee of the estate was described as exemplary, and as at 17 August 1985, it had remained so. The report went on to say "His co-operation in the administration of the estate has been unqualified, 1unvaluable and indispensible ...". As a result of his endeavours a successful sale of the land at Tucson was achieved and a net amount of $20,200.71 was credited to the account. Since his return to Australia the applicant has been self-employed as a business consultant. He has furnished me with details of his gross earnings. They are set as below: 12. 1980/81 -~ no taxable income 1981/82 $ 7,000 1982/83 $20,000 1983/84 $13,000 1984/85 $15,000 - $18,000 estimated As a business consultant he basically is consulted by a client about a business (non-corporate) that is in difficulty. The applicant isolates and analyses the problem or problems and cause or causes thereof and develops a solution. Because of his present status his range of clientele is limited to those who are prepared to seek his assistance notwithstanding that he is an undischarged bankrupt. He does not advertise. His low gross incomes during his bankruptcy reflect his difficulties. His income has improved in 1986 when it probably exceeded $60,000. He is also subjected to some harrassment because of publicity arising out of his journeying to Israel and the United States and his return to Australia in December 1980. The applicant's efforts to obtain judicial recognition of his eligibility for a discharge have absorbed a substantial part of his earnings and further reduced the time available for his consultancy practice. His discharge will materially widen the range and diversity of his clients. He has stated that he has no intention of involving himself in corporate structures. He is the author of a novel "The Merchants of Melbourne", which was successful enough to meet the costs of 13. publishing and distribution but has earned him a net profit of only $1,000. He has been commissioned to write the history of a corporate entity and has a long-term ambition to achieve success as a professional writer. With respect to the conduct of the applicant in those matters resulting in his bankruptcy it is subject to criticism in that, it turned out badly, that he had run up loan accounts in companies that were under his control, that he was a persistent gambler and that in his lifestyle he lived well. The main creditor whose debt arose out of a course of corporate transactions between the bankrupt was Mr. Kornhauser. It is claimed by the bankrupt that on 30 November 1978 an agreement had heen reached between him and the Kornhauser interests for the settlement of all matters in dispute between them. The bankrupt contends that he was at all times ready and willing to carry out the terms of this settlement in all respects but that Mr. Kornhauser wrongfully repudiated it. According to the bankrupt there would have been no debt due to the petitioning creditor had this agreement been honoured and that Mr. Kornhauser maliciously repudiated the agreement for the express purpose of destroying the bankrupt commercially and otherwise. There is no doubt that arising out of their business or some other relationship there has arisen between the bankrupt 14. and Mr. Kornhauser a high degree of mutual personal ill-will amounting 1t seems even to hatred. The exercise of maliciously 1nspired conduct by the one against the other would not be improbable. Personal mutual antipathy of a high order also exists between the bankrupt and Mr. Kuperholz the solicitor acting for the Kornhauser interests. But so far as concerns the non-implementation of the settlement agreement it is to be observed that the claim against the bankrupt, which would have been discharged if the agreement had been implemented, was the subject of an action in the Supreme Court of Victoria in August 1979 and judgment was entered in favour of Mr. Kornhauser's interests and against the bankrupt. The bankrupt contends that he was unable to defend the case properly because of his own and his wife's ill health. Also he contends that he was impeded in his defence because Mr. Niemann, the liquidator of various of his companies involved, refused to co-operate and actually abandoned the cause. It is impossible, and I think unnecessary to attempt to decide whether either side was responsible for the non- implementation of the agreement. It did not provide a defence to the bankrupt in the proceedings against him by the petitioning creditor because it was of a preliminary nature and conditional upon the execution of a further formal document. 15. Clause 11 of the agreement provided, "The foregoing is subject to (a) the execution of documents in a form satisfactory to the solicitors for the creditors". Of course the non-implementation of the agreement relieved the bankrupt's estate from having to part with those items which would have constituted the consideration for the release therein. For current purposes the debt to Mr. Kornhauser must be treated as a liability the result of commercial transactions which for the most part have been the subject of litigation which was determined against the bankrupt. The Causes of Bankruptcy There would appear to be no allegation of fraud or misrepresentation in relation to the bankrupt's pre-bankruptcy commercial transactions. This observation is subject to the qualification that the Kornhauser interests are to be taken as alleging unspecified misconduct of some kind. Such an allegation could possibly proceed from the animosity which has been generated and which still subsists. The same kind of general unspecified allegation of improper conduct is made by the bankrupt against Mr. Kornhauser and his solicitor Mr. Kuperholz. The result is that with respect to the pre-bankruptcy dealings of the bankrupt the situation appears to be that bankruptcy supervened upon imprudent trading or trading which 16. turned out badly. This was accompanied by the use of funds of companies of which the bankrupt was the shareholder beyond his capacity to repay the sums used, and the incurring of debts in gambling. It also supervened upon an episode the significance of which I have had difficulty in assessing, namely the borrowing by the bankrupt from Mr. Kornhauser in 1976 of the sum of $2.3 million repayable on 1 December 1976 to finance the takeover by the bankrupt of Pizzey Ltd. With reference to the sums of $875,235 for which a proof of debt was lodged by Chevron Hotel (Melbourne) Pty. Ltd. that sum represented a balance due to the ANZ Bank of monies advanced by it to Pizzey Ltd. before the takeover of that company by Zion. The liability in Zion for that amount arose under a guarantee given in 1975. It was the subject of proof of debt by the Chevron company because of the operation of the priority agreement hereinafter mentioned which contained an assignment to it of securities held by the ANZ Bank. The proof of debt of the same Chevron company for $2,994,735 arose out of a transaction of July 1976 between Zion and Mr. Kornhauser. These two proofs total $3,869,970 of the total liabilities of the bankrupt estate. The circumstances relating thereto are of some importance in relation to the causes of the bankruptcy. When the priority agreement referred to was entered into, namely, 18 February 1980 the bankruptcy was five months 4a 17. old. The proof of debt of the petitioning creditor and of HSP (Nominees) Pty. Ltd. totalled $2,994,735. They were supported by judgments obtained 1n 1979 and interest thereon. Those judgments were mainiy monies advanced to the bankrupt to purchase the shares in Pizzey Ltd. and interest thereon. In addition, there was in the priority agreement in respect of a debt of $2.2 million or more to the ANZ bank, an assignment by the bank to the petitioning creditor of the securities and other rights it held against the Zion companies. The agreement did not purport to assign any rights it held against the bankrupt. But of course the bankrupt was liable to the bank in respect of the debts of the companies to the bank under his guarantee thereof. The purpose of the priority agreement was to facilitate the acquisition by the petititioning creditor, Chevron Hotel (Melbourne) Pty. Ltd., of the monies payable by the companies to the bank, not, with the intention that that would constitute a reduction of the bankrupt's judgment debt to Chevron but that out of the total Claim of the bank and Chevron against Zion and his companies Chevron might have the first recovery. Apart from the assignment under the priority agreement Chevron had no legal claim under the company securities. It was a great advantage to it to have access to the securities. For that advantage it agreed to assign to the bank a proportion, equivalent to any sum received by realization of the securities, of the debt due to Chevron by Zion under its judgment. The probability was 18. that the assignment could have netted money to Chevron which it would never have received in Zion's bankruptcy. And so far as it did so Chevron was to have that advantage, but was to transfer an equivalent amount of Zion's debt to the bank. This would give a substantial practical benefit to Chevron. If it collected X dollars under the securities and assigned to the bank X dollars of the debt due to it by Zion, the bank would step into Chevron's shoes in the bankruptcy. For the bank to step into those shoes would in the events that happened, avail it little if anything although theoretically 1t might have had some value. A question arises as to the bank's reasons for extending this benefit to Chevron. The obvious possibility, indeed likelihood, is that the bank felt 1t was under some obligation to Chevron in connection with the advance by it to Zion in June 1976 of more than $2 million. It strengthens the bankrupt's contention that when that loan was made by Chevron to and accepted by Zion it was understood that the ANZ would be standing behind Zion when the Pizzey takeover was completed. It was because this did not happen that Chevron remained a creditor of Zion until his bankruptcy. However, as between Chevron and JZion's estate the situation was not affected by the priority agreement. It effectively meant that, because of the relationship between Chevron and the bank, Chevron was able to trade a right which 1t had in the bankruptcy for a consideration, namely access to the bank securities over assets of Zion's companies. It 19. appears that Chevron did receive the sum of $1,375,353.93 from realizations of securities given by various of the Zion companies pursuant to the assignment in the priority agreement. So far as the bankrupt estate was concerned this was res inter alias acta unless the assignment provided for in the priority agreement of an amount equivalent to that obtained by Chevron from the securities was actually carried out. In that case, to the amount of $1,375,353.93, the bank would have stepped into the shoes of Chevron. There is no evidence that the right to Zion's debt to Chevron, to this extent, has ever been assigned. If it had been, then, so far as the bankrupt estate was concerned the total indebtedness of the bankrupt would have remained constant. It is said by the bankrupt that in these circumstances 1t is immoral for the petitioning creditor to purport to bea creditor of the bankrupt for the sum of $2.9 million. But until the debt due to the petitioning creditor is, to the extent of $1,375,353.93 re-assigned to the ANZ bank the debt of the bankrupt under the judgment is unaffected by what happened under the priority agreement. But it would be certainly correct to say that in respect of the total debts, those guaranteed by the bankrupt in favour of the ANZ bank and the subject of the assignment in the priority agreement, and those for which judgments had been obtained against the bankrupt, the bankrupt is entitled to a credit of $1,375,353.93. This credit was reflected in the proof of debt by Chevron for $875,235.13 in respect of the balance due by the bankrupt on his guarantee to the ANZ Bank 20. of the monies lent to Delajohn Holdings Pty. Ltd. which is a proof separate from the proof of Chevron for the $2.9 million based on its Judgment. That last mentioned proof of debt 15 based upon the view that the assignment in the priority agreement extended, not only to the debts due to the ANZ Bank by the companies and the subject of securities given by the companies, but also to the debt due by Zion under the guarantee to the bank of such debts. It has to be remembered however, that when one asks the question, what is the extent of the actual loss of Chevron (Kornhauser) arising out of the loan to Zion of July 1976, it is a critical fact that the assignment was achieved by Chevron without consideration other than a promise to assign to the bank part of Zion's indebtedness to Chevron equivalent to any sums received by Chevron under the assignment. In effect the assignment cost Chevron nothing. However it netted to Chevron $1,375,353.93. Accordingly, if one asks what loss did Chevron suffer as the result of its transaction with Zion of 1976 the answer is $2,994,735.00 less $1,375,353.93 namely, $1,619,381.07. It seems that the bank has never asked that an equivalent amount of Zion's debt to Kornhauser be re-assigned to it. This reduction of loss suffered by Chevron does not mean that its right to appear in these proceedings is affected. It 21. does mean however, that there is not some validity in the contention by Zion that the implementation of the priority agreement operated to reduce the loss of the petitioning creditor, a fact which cannot be totally ignored. It has received payment pursuant to an agreement with another creditor of moneys im respect of which against that other creditor the bankrupt was entitled to a credit. It is to be observed also, that when Chevron claims pursuant to the assignment in respect of the alleged debt by Zion to it as guarantor of the securities given by the Zion companies to the bank, 1t purports to claim in its own right. If it is actually claimed in its own right it would, if a dividend were payable, constitute a windfall to Chevron, for in fact it gave no security for it. The whole transaction bears the mark of a _ gift by the bank to Mr. Kornhauser, presumably to compensate him for the failure of the bank to "take him out" in 1976. But that same failure had unfortunate consequences for Zion. On the question as to the fundamental cause of the collapse of the Zion corporate structure the circumstances surrounding the dealings between the ANZ Bank, Zion and Mr. Kornhauser of July 1976 appear to be significant. Zion was the Chairman of directors and substantial shareholder of Pizzey Ltd. He desired to takeover the company by purchasing the balance of the~-shares. To do this he required financial support in the range of $2 million. He discussed this with top management of the bank and was told that the company being 22. a client of the bank, the bank would not directly fund the takeover because of bank policy in that respect. It appears nevertheless that the bank regarded the takeover as commercially reasonable, so much so, indeed, that it proposed to Mr. Kornhauser that he should advance the sums required by Zion, such sums to be repayable on 1 December 1976. That date 1s explicable only on the basis that by then the takeover would be complete and the bank would be free to deal with Zion as the new owner, and advance him the money to repay Mr. Kornhauser. It appears also that Mr. Kornhauser understood that as at 1 December 1976 he would be "taken out" by the bank, in other words that the bank would, at least, pay him out. Mr. Kornhauser made the advances to Zion in instalments of $1,864,644.00, $168,994.00 and $49,147.91 during the second half of 1976. For some reason, unexplained, the bank after i December 1976, neither made any advance to Zion nor "took out" Mr. Kornhauser. It seems clear that the ANZ regarded itself as having a substantial responsibility to Mr. Kornhauser in respect of that failure. So far as Zion was concerned it left him exposed as a debtor to Mr. Kornhauser for over $2 million. Pizzey's assets were subject to security to the bank and assets of Pizzey's subsidiary companies were similarly subject. One of the reasons advanced by the directors of Pizzeys to its shareholders for accepting @Zion''s offer for their shares was that it 'was thought that it might "take a further two years to realise on all assets and also the fact that there are unlikely to be any dividend payments during that time". In these circumstances it might have seemed strange that the bank regarded it as suitable to arrange for one of its good clients to lend the money for the takeover. But 1t obviously did, and in circumstances in which, unless some person "took him out" the chances of Zion repaying the loan on Ll December 1976 were for practical purposes non-existent. The fate of Pizzey and its subsidiaries was to be liquidated within a relatively short time. It is clear from the letter of 9 November 1977 from the bank to Mr. Kornhauser that an arrangement had been reached between the bank and Kornhauser "to clear liabilities incurred during the takeover of Pizzey Limited". The immediate liquidation of Pizzey Limited was contemplated at that stage. The substance of the arrangement was that all the liabilities of "Pizzey Limited Group of Companies" be cleared and surplus funds to be placed in the account then known as Delajohn Investments Pty. Ltd. and transferred on liquidation to Delajohn Holdings Pty. Ltd. Delajohn Holdings Pty. Ltd. was to hold the surplus funds in the following order, namely, first liabilities to Kornhauser interests and Plato Securities Pty. Ltd. as at 1 December 1976, and exclusive of interest to be cleared, second, liability of Delajohn Holdings Pty. Ltd. to the bank to be cleared from the balance, third, any surplus to be used _ to clear interests on a pro rata basis. 24. The arrangement also provided: "At this stage it is not clear just what funds will be available towards the above distribution programme. To the extent that your debt is repaid as above, so you must assign to the bank a similar amount of Mr. Zion or Zion Companies debts which must be valid and enforceable obligations and not subject to set off or counter claim." Thus was the foundation laid for the priority agreement of 18 February 1982. But before that date an attempt had been made to compromise the conflicting interests and claims which had arisen between the Zion and Kornhauser interests. These interests and claims were highly complicated. The extent of the complication can be best comprehended by making an attempt to master the terms of the letter of 23 August 1978 and the preliminary agreement of 30 November 1978 which arose out of 1t. This agreement was never executed in formally binding form. But its negotiation was a matter in which the ANZ took an active part. It was certainly regarded by the bank as a basis for disposing of existing disputes. Its letter of 23 August 1978 to Zion is sufficient evidence of that. The significant feature is that although the $2 million odd had been advanced to Zion in 1976 and the Pizzey group had gone into liquidation and the assets of the group had been the subject of the arrangement of 9 November 1977, and although the proposal in the letter 1s made with the approval of Mr. Kornhauser, there is no hint that these events were due to any misconduct on the part of Zion. On the contrary the proposal 25. contains a provision which will provide a base for the Zion interests for their future business activities. Clause 3 of the letter states: "(3) ANZ Banking Group Ltd. would release and discharge Delajohn Holdings from all indebtedness owed to the Bank by that Company and would further release and discharge any charges held hy ANZ Banking Group Ltd. to secure that indebtedness. It is intended that ownership of Delajohn Holdings Pty. Ltd. will remain with the Zion interests to give them a base for future business activities." It has been put to me that it 1s to be inferred that the shrinkage of value of the Pizzey Group Shares between 1976 and the judgment in August 1979 was due to misappropriation of funds by Alfred Zion. I reject this. It is quite clear that the fate of the Pizzey Group was under the supervision of the bank from 1 December 1976 and that the realization of the assets of the group proceeded under, at least, its overall control, and that as late as August 1978 the bank has a thought to equip Zion with a base for his future business operations. The inference 1s clear that from 1 December 1976 the bank and Mr. Kornhauser were in close touch with and determined the fate of the Pizzey Group. Zion stated in evidence that it had become impossible to trade in the normal way of Pizzey in the distribution of its goods so that it " became just an operation to realise the stock. He complains also of the over-hasty liquidation, at the insistence of Mr. Kornhauser, of one of the better subsidiaries, Mobilco Pty. 26. Ltd. There is no evidence from the bank or Mr. Kornhauser to throw any doubt on these inferences or this evidence. The inference I draw is that the Pizzey collapse resulted from circumstances of a commercial nature comprising misjudgment or plain misfortune but not misconduct. As to the liabilities arising out of the takeover of Winn's Ltd, ($350,000) 1t appears that they arose froma deal in which what was bought simply was not worth what was paid for it. The bankrupt claims that there was misrepresentation which led to his company entering into the deal. But there is no suggestion before me of any misconduct on the part of Zion. As to the debts incurred on guarantees to National Australia Bank for $426,235, (loans to Pizzey Properties Pty. Ltd. and Braithwaite Pty. Ltd.), to CBC of Sydney, as it then was for $361,903 (loans to M/L Investments Pty. Ltd.), to CBA Ltd., as it then was, for $285,113 (loans to River Oaks Property Investments Pty. Ltd.) to General Credits Ltd. for $4,345 (loan to Pizzey Properties Pty. Ltd.) and to Citicorp Australia Ltd. for $16,668 in respect of a claim on termination of lease of a Rolls Royce, which total more than $1 million, none of those creditors oppose Zion's application for a discharge and no suggestion is made that there was misconductron-his-part in connection with the transactions out of which the liabilities arose. Each of these entities is sophisticated and skilled in financial affairs. It is a 27. reasonable comment that the transactions appeared viable to the parties when they were made. The inference 1s that the failures were due to disappointed expectations, misjudgment, inefficiency or unexpected adverse circumstances. No other creditors oppose the discharge of the bankrupt. The most serious criticism of Zion is that he drew sums of money in amounts significant in themselves but minor in the totality of the bankruptcy from the companies which he owned and controlled. I would infer that but for the general failure of the companies with which the bankrupt was concerned arising from fundamental weaknesses in the various projects, and of course, from special disappointments in relation to Pizzey Ltd., the amounts in question would have caused no deficiency in the bankrupt's accounts. No doubt it is for a similar reason that the Official Trustee drew the inference that the cause of the bankruptcy was that the bankrupt over reached himself and was involved in over-borrowing. The projects just did not measure up to the strains thereby put upon them. The bankrupt''s style of life was no doubt established in the days of his success. No doubt in his ventures in the seventies he was full of confidence and regarded the maintenance of that lifestyle as the natural thing. Until that confidence was eroded, and it is not clear when that was, this: attitude can be understood. Looking at the matter at this stage, I am of the opinion that the critical matters in relation to this application for the 28. bankrupt's discharge 1s not his pre-bankruptcy conduct but his post-bankruptcy conduct. In that respect a number of matters have arisen which require consideration. Post Bankruptcy Conduct The departure of the bankrupt and his wife to Israel occurred before bankruptcy but after an authorisation under s.188 of the Act had been signed and a very short time before the sequestration order. It 1s conduct directly related to the post bankruptcy situation. Obviously this conduct was calculated to give rise to inference that the bankrupt was acting deliberately to the disadvantage of his creditors. He says that he went because of his wife's health and there is respectable medical evidence that she was ina state of nerves and distress, a genuinely serious condition. Nevertheless it is impossible to regard his conduct in leaving the jurisdiction without a specific forwarding address, as otherwise than reprehensible. It was dramatic action and put him in the worst possible light. I think the real reason for the departure was the irresistible desire of Zion to escape the environment of failure and humiliation at the destruction of his corporate structure and the apparent triumph against him of his known enemy Mr. Kornhauser culminating in the successful litigation in 1979. Zion is in some ways a most talented man and I do not doubt was mortified by his failure. Only an impulsive urge for a change of surroundings where he 29. might regain his confidence could have impelled him to depart to Israel with some money and the furs and jewels of his wife. I do not think he went to defraud the creditors. Subsequent events support this view. It is said that his departure caused it to be necessary for the Trustee Mr. Niemann and his deputy Mr. Douglas to make separate journeys to [Israel and the United States. It is of small importance at this stage, but I cannot but doubt whether these journeys or at any rate both of them were necessary. The liabilities of the bankrupt were nearly all on guarantees. There was no dispute as to their extent. The presence of the bankrupt might well have been necessary in the liquidation of the companies but only moderately so at that time in connection with his estate. Indeed when Mr. Niemann interviewed the bankrupt in the United States he actually advised him not to return to Australia. As matters developed it is probable that the creditors suffered little by his journeying and living in Israel and the U.S.A. in 1979 and 1980. The furs, jewels and money which the bankrupt and his wife took to Israel were taken to America early in 1980. They were delivered to the Trustee in America in 1980. The bankrupt remained in America until December 1980 during which time he carried on a consultancy business. The money he had taken from Australia, or what was left of it, was used to assist the:'purchase of land in Arizona (the Tucson land). For a short time he was in partnership witha Mr. Duane Arthur who made advances to him. The land was purchased 30. before that partnership commenced. While the bankrupt was in the United States the Trustee Mr. Niemann advised him to remain in America where he appeared to be able to carry on business, whereas, because of the possible influence of Mr. Kornhauser, he might find it difficult to re-establish himself in Australia. However, the bankrupt returned to Australia in December 1980. Since then according to the Report of the Official Trustee in its original terms, his conduct has been exemplary. As a result of his view of evidence at this hearing the Official Trustee formally sought leave to amend his report and to withdraw his comment that since his bankruptcy the bankrupt's conduct has been exemplary but makes no other comment, The conduct of the bankrupt since bankruptcy has been extensively investigated in this proceeding. The bankrupt was cross-examined by counsel for the Kornhauser interests for approximately 9 days in total and shortly by counsel for the Official Trustee. Matters Arising in Evidence The evidence was voluminous. The main avenues of attack upon the bankrupt were concerned with his relationship with one, Mrs. Wilma Sulzer, his transactions with the Official Trustee concerning the Tucson land, and alleged non-disclosure made to the Income Tax Commissioner and to the Legal Aid ent , 31. Commission of his interest in the Tucson land and the bankrupt's general conduct during these proceedings and his attitude to his creditors generally. Mrs. Sulzer About 1982 friends of Mrs. Sulzer having had unfortunate transactions with one Cato, had consulted the bankrupt. They invited Mrs. Sulzer, who also had had unfortunate transactions with Cato, to meet them to discuss the matter. Mrs. Sulzer was introduced to the bankrupt by these friends. As a result the bankrupt was engaged to write a report on the Cato transactions which he did for $§500. Mrs. Sulzer had previously conducted a retail butcher shop and boning establishment called "Marble Mountain" in Richmond, Victoria. She had sold this business but as the purchaser was in default in payment of instalments of the purchase money, Mrs. Sulzer engaged the bankrupt to assist her to recover the business. This he succeeded in doing. Mrs. Sulzer resumed the ownership and management of the business and engaged Zion as a financial consultant in relation thereto at a weekly wage of $300.00. These events occurred early in 1983. It occurred to Mes. Sulzer or Zion that the business of Marble Mountain would benefit if Mrs. Sulzer had her own abattoir. As a result they inspected an abattoir at Deniliquin. Shortly afterwards Zion came into contact with Mr. Jaeger who owned and conducted an 32. abattoir at Tatura and another at Tongala. It appears that the Jaeger business was financially embarrassed. Zion was engaged to negotiate with creditors. Zion negotiated with creditors. of Jaeger with apparently satisfactory results. It then appeared that Jaeger was willing if not anxious to sell the abattoir at Tatura. A proposal eventuated that Mrs. Sulzer should buy the Tatura abattoir. There was a mortgage to Esanda Limited over the land of the abattoir for $200,000 . Zion negotiated with Esanda and succeeded in obtaining a reduction in that mortgage to $100,000 without consideration therefor. He arranged also with Esanda that Mrs. Sulzer purchase the abattoir and borrow $50,000 on overdraft from Westpac, the security to Westpac over the land to secure the overdraft to take precedence over Esanda''s mortgage. She did make the purchase. The agreement provided that she should be responsible to Esanda for the $100,000 mortgage. It provided that Mr. Jaeger should be responsible for the amount of the trade debts of the Tatura business so far as they exceeded its trade credits. In effect Mrs. Sulzer obtained the business without actual payment of money. Mrs. Sulzer owed Jaeger's business $41,000 from Marble Mountain and Jaeger insisted on payment of this amount. Later it was alleged that Mr. Jaeger had understated the liabilities of his company. This resulted in litigation and Mrs. Sulzer recovered $20,000. Mrs. Sulzer went into occupation of the Tatura abattoir early in July 1983. She continued to engage Zion as her 33. financial consultant. According to Zion she agreed to pay him a fee of $25,000 for the coming year, payments of his' current wage of $300 per week to be on account thereof. Mr. Zion made an agreement with Mr. Jaeger that he should pay $15,000 for Zion's services in and about negotiations with creditors and the sale of the abattoir to Mrs. Sulzer. This fee was duly paid. Mr. Zion said that Mrs. Sulzer was fully aware that this fee was to be paid to him. This was not denied. The business at Tatura was managed partly from the Richmond office of Marble Mountain and partly from Tatura. There was an employee of Mrs. Sulzer called Mr. Tuthill who held an appointment, of an ambiguous kind, as salesman and office helper. For some time he was a Director of the Jaeger Meat Works Pty. Ltd. - - In August 1983 Mrs. Sulzer took up residence at Tatura to better manage the abattoir. She carried out killing operations on contract for stock owners. She also bought stock for herself, killed it and used it to supply Marble Mountain. Her principal business bank account, the Jaeger Meat Works Account, was at Westpac, Richmond branch. There were various accounts of hers at that bank including an account called the No. 1 account. She had an account in the name of Jaeger Meat Works at_Westpac Tatura Branch and a savings bank account there. She received cash and cheques at Tatura in the course of carrying on the abattoir. 34. At first the signatories of the Westpac Richmond account were herself and Mr. Tuthill. Later, she cancelled Mr. Tuthill's authority. She was the only signatory of the No. 1 account. She made trips to Richmond from time to time and Zion made trips to Tatura from time to time. There was much telephoning between Richmond and Tatura. The banking at Richmond was mainly done by Mr. Tuthill. The Tatura bank account was attended to by Mrs. Sulzer personally. Mr. Zion attended the Richmond office most days for a major part of the day until September 1983 when he became engaged in defending committal hearings in proceedings brought against him. This, with a period of recouperation out of Melbourne kept him away from the business until the end of November. Early in December there was a heated discussion between Mrs. Sulzer and Zion at Tatura. The issues are not defined. Mr. Zion purported to resign and to settle for $1 his claim for the balance of the §25,000 fee said to be accruing to him and signed a receipt to that effect. Mrs. Sulzer states that she terminated his services as at that time. A few days later Mrs. Sulzer had a conversation with Mr. Day at the Glenferrie branch of the bank where he was manager on relieving duties. He said he had heard that Mrs. Sulzer had dispensed with the services of Zion. Mr. Day thought this 35. was unwise. Mrs. Sulzer says Mr. Day rang her and she saw him at Glenferrie in response to his call. At any rate he did advise her that it was foolish to cease to employ Zion as the bank account was always kept 1n good order by him. Mr. Day met Zion originally, when Mrs. Sulzer took Zion along to meet him as the then Richmond Branch manager. She told him that Zion was to be employed by her. Mr. Day informed Mrs. Sulzer, not in Zion's presence, that he knew Zion to be a_ bankrupt, that his reputation was doubtful and that she should be careful in dealing with him. During his experience with Zion, however, in connection with the business bank accounts, Mr. Day had come to regard Zion as a useful and reliable person. Having received advice from Mr. Day that it was not wise to terminate Zion's services, Mrs. Sulzer sought to reinstate Zion. As a result Zion made his position clear in a letter of 11 December 1983. In early December Mrs. Sulzer and Zion visited the then Manager of Westpac at the Richmond Branch, one Mr. Langdon. There the foundation was laid for the closing of the No. 1 Account and the extension of the company overdraft to $70,000. The relationship between Zion and Mrs. Sulzer was put into form in the terms of Zion's letter dated 27 January 1984 which Mrs. Sulzer confirmed on 3 February 1984. That letter was in the following terms: .- - sof 36. "T refer to our meeting yesterday in relation to the continuation of my retainer and confirm our agreement as follows: Fees L.. I am to continue as your consultant but the terms of the retainer are altered. Instead of recelving a weekly retainer, an all-up fee of $8,000 plus disbursements are to be paid to me for reaching agreement with your creditors and creditors of your companies. Disbursements include secretarial and telephone charges, petrol (if I have to make a trip to Shepparton) and the like. During the period of my retainer I _ shall be entitled to continue to have the use of the Fairmont. The balance of fees owing to me as per my letter of llth December, 1983 and rounded off by mutual agreement to $10,000 will also be paid. You will pay me $2,000 on account of the above monies due to me plus disbursements to date ($120 for telephone) by Friday, 3rd February. Duties lL. Your current situation with your creditors is one requiring an agreement whereby: (a) Creditors created by Lou Jaeger will have to wait payment until you obtain judgment in the Supreme Court in the proceedings you have issued against the Jaeger family. (b) Creditors of Jaegers Tatura Meat Works Pty. Ltd. which have come into being after you acquired the company will have to agree toa sort of moratorium to enable you to continue trading, whether as Jaegers Tatura Meat Works Pty. Ltd. or otherwise. It would be wrong for you to assume wee - that you could transfer the business or the property out of the company without an agreement with your creditors. 37. Creditors outside the Tatura complex, vi1z., Marble Mountain and your personal creditors, will have to be rearranged in conformity with item 1(b). By this I mean that any repayments you make to them will have to be projected to enable you to continue trading. The problems you face with the demands of the Department of Agriculture will have to be analysed and for this purpose I will be arranging to see Dr. Rees early next week. The restructuring of your cash flow, on the presumption that you are conducting a profitable business at Tatura, to enable you to meet your requirements to your creditors as above stated including Westpac and Esanda. To arrange finance for you to conduct a wholesale business of supplying beef to Coles. For this purpose you are to arrange an appointment for me with Mr. Michael Edes of that company. General Observations 1. I repeat my oral advice to you that from monies banked in Jaegers Tatura Meat Works and Marble Mountain, it appears that your business of wholesale meat supplier was being conducted with heavy losses to date. Your commitments to creditors generally have not been capable of being performed and especially those commitments made by Mr. Tuthill. Mr. Hamilton required certain information from yourself or Mr. Tuthill to complete the Marble Mountain and Assonance figures for both the Corporate Affairs Commission and the Taxation Department. He has been waiting for this information for at least two months. For the same period, he has been waiting for the details of your hotel business to complete your personal tax return. In addition to the above, there is obviously a large amount of information required to be delivered to Mr. Friend for Jaegers Tatura Meat Works. You are to supply me with the account you received from Mr. Friend together with the details of the information he requires. 38. 4. In order to properly complete my assessment of the profitability of the Tatura business I therefore need you to supply me with the following: (a) A list of your customers and the average kill you expect from them each week. (b) Your current debtors. (c) Your current creditors. (d) Your minimum weekly expenses. The above information does not, of course, take into consideration the substantial increase in the killing fees that would result from the projected contracts with Coles through Mr. Michael Edes which, I am given to understand, would be in the vicinity of 100 head of cattle a week. 5. No agreement is possible with your creditors if the abattoirs are not functioning as a profitable enterprise. 6. I repeat my advice that it is necessary for you to employ a manager at the abattoirs in order for you to be free to deal with present and future customers and to better administer your business which, in the final analysis, can only be done by yourself. If the contents of this letter are in order, please confirm the same on the enclosed copy." Mrs. Sulzer says that she did not read this letter and confirmed it only because Zion requested or directed her so to do. She added that she had not understood the original fee was $25,000 but got the impression that she was confirming that there was to be another $25,000. I am satisfied that she read the letter and did know exactly what was in it. She says that in the hands of Zion she was an automoton and never thought of not doing what he requested her todo. Ido not 39. believe this. She was a business woman of some experience, having taken part in real estate realizations and a_ transfer of a property to her daughter rather than herself in connection with her divorce, the management and running and sale of the Duke of Albany Hotel, the running and sale of Marble Mountain, the purchase and sale of stock and the management of employees in connection with her businesses. She impressed me as quite competent. I did not believe her protestations of inability to understand business affairs. She had sufficient independence to quarrel with Zion and terminate his appointment in December 1983. Also in July 1984, she decided she would dispense with the services of Zion but maintained a friendly appearance with him and the next day instructed her solicitor to inform Zion of his termination. No reason for the termination was disclosed in the letter of termination. One reason for the termination of Zion's appointment may have been that unknown to Zion she was negotiating to sell the abattoir without an agreement with her creditors although warned by Zion that this should not be done. She also had sufficient independence to run the abattoir for a period without workers compensation cover and contrary to the advice of Zion. It is said that during his association with Mrs. Sulzer, Zion committed various acts of misconduct. The most' serious is that he actually stole some $4,000 of cash receipts which Mrs. Sulzer had given him to bank at Richmond. Of course 40. there were cash receipts at Tatura and the curious feature is that in the pay-in slips relating to the Jaeger Meat Works account both at Tatura and Richmond there 1s no reference to the payment into the bank of any cash. The preparation of those slips for the Richmond account appears to have been the work of Mr. Tuthill at least until the end of January 1984. It is not clear from the evidence of Mrs. Sulzer when it was that she says she realized that Zion was appropriating cash of the business for his own purposes. The Westpac account at Tatura was active and money passed between that account and the Richmond account. The pay-in slips relating to the Tatura account both at Tatura or Richmond reveal no deposits of cash. If Mrs. Sulzer believed that Zion was appropriating cash it would be surprising that she should not have acquired that belief before she purported to dispense with his services in December 1983. There is no suggestion that at the heated conversation at the end of November she suggested that he had misappropriated her money. Similarly when she saw her solicitor in July 1984 to instruct him to terminate Zion's employment she said nothing to him about her alleged belief that Zion had stolen some $4,000 which she now asserts was the extent to which by that time Zion had, in plain terms, stolen her money. And in Mrs. Sulzer's statement late in 1984 to the liquidator of Jaeger's Meat Works Pty. Ltd. as to the causes of the-fatlure of that business' she is critical of Zion in various respects, but there is no hint of his having misappropriated cash. If it were true that he had done so 4l. there was every reason why he should have been made to pay it back. I totally reject the notion that there was ever an arrangement that Zion was to be a secret or sleeping partner. During these long proceedings what may be called Zion's style has come under my observation in good measure. In my view whatever comment unfavourable to Zion may be made, I do not think it would be his style to make straight misappropriation of money, as it were, from the till. He would press for advantages such as provision of a car and ask without hesitation for what seem like high fees, and obtain a fee from both parties to a transaction. But I do not believe he would simply take money from the till. And of course during practically the whole of the period from June 1983 to June 1984 Mrs. Sulzer was friendly with Mr. Tuthill. Mr. Tuthill was ina position to know that cash was not being banked. It would have been simple to ascertain that cash which Zion should have channelled into the bank account had not been so channelled. Accordingly, I do not believe' that Zion misappropriated cash. And no submission that I should find that the bankrupt misappropriated cash was made by counsel for the petitioning creditor or the Official Trustee un their formal addresses. Of course due to the aura surrounding Zion''s conduct and personality it is easy to make -allegations against him and expect them to be believed. It was a serious allegation for Mrs. Sulzer to make against Zion 42. and much to be regretted. I do not receive any assistance from the evidence of Mr. Tuthill in any respect. It is said that Zion had put himself in control of the resources of Mrs. Sulzer's business by getting Mrs. Sulzer to sign cheques in blank. There is no doubt that he did obtain from her some cheques in blank. The cheques in question are available and have all been examined. The proper conclusion on the evidence is that all of them were either used on account of the business or, if not, were met by payment into the bank account of money belonging to Zion. But that does not mean that Zion is not open to serious criticism in two respects. It was, at least, very foolish of him to use the business account, or the No. 1 account as an avenue through which to make private payments. It was foolish to mix his own money with that of his employer. It was asking for trouble that having done these things, he failed to keep a complete and accurate account of his position viz a viz his employer. To fail to do so was part of Zion's way of doing things in a big way. It is small consolation that after much investigation he is seen, on balance as between himself and Mrs. Sulzer, not to have obtained more than was his own. Having heard the evidence, and particularly that of Mrs. Sulzer, in respect of the individual amounts I am satisfied that none of those amounts were improperly made to Zion or for his benefit or were unauthorised by Mrs. Sulzer. 43. The affidavit sworn by Mrs. Sulzer in opposition to this application emphasises that from time to time she signed blank cheques and gave them to Zion. The suggestion is strongly made that those blank cheques were obtained by Zion from Mrs. Sulzer by the exercise of some baneful influence exercised by Zion over her which deprived her of thought and the will to question or to fail to obey his requests or demands. Undoubtedly Zion is a man of personality with powers of persuasion in business matters. But she had been warned by Mr. Day against putting trust in Zion, and knew he was an undischarged bankrupt. Mr. Day was undoubtedly well disposed towards her. She had been his client for a substantial period and he was available for a word of advice or to receive a note of anxiety. Mr. Langdon who succeeded Mr. Day as Manager of the Richmond Branch appears to have been a proper person and could have been consulted. Mrs. Sulzer had access to Mr. Friend the accountant of the business anda solicitor known and trusted by her. The situation is that, just as Mr. Day had read publicity adverse to Zion and regarded him as a person to beware of 1n business, so, at this stage, the business entered into and conducted with Zion having turned out badly, and with him being blamed for it, there is a temptation to think that the failure of the abattoir business must have been through misconduct on the part of GZion. But it is quite a reasonable explanation that it was the result of inattention, bad 44, judgment, bad management or just that the business had in its very nature the source of financial failure. I cannot ignore the circumstance that the affidavit of Mrs. Sulzer was compiled in great haste with Mr. Kuperholz as the draftsman of the language used, and that Mrs. Sulzer, swore the affidavit not even having read it. It is regrettable that she was permitted to swear such an affidavit without reading it. And having regard to the undoubted positive and unconcealed animosity of Mr. Kuperholz against Zion it would be far from impossible that the bite in certain passages is the product of Mr. Kuperholz' prose. It was not surprising that at an early stage of this hearing Mrs. Sulzer herself found matter in the affidavit which she felt impelled to correct. But it 1s surprising that she found 1t necessary to make further corrections in cross-examination. Certainly blank cheques were signed from time to time and there were reasons for that occurring. The picture arising from the passage "I therefore continued signing whatever cheques he asked me to sign, always in blank ..." is I think exaggerated. When 1t was referred to Mrs. Sulzer she swiftly said "That is a mistake. They were cheques made out to cash". But it is the tone of the allegation useful to support a picture of wilful and fraudulent domination of this lady by Zion, and of her sometime friend Mr. Tuthill. The test is to look at all the payments which are challenged. And on doing this I am satisfied that no debt by Zion to Mrs. Sulzer or Jaeger's Meat 45. Works Pty. Ltd. arose out of the banking operations of the No. 1 account or the Jaegers Meat Works Pty. Ltd. Account. On the whole it seems to me that Zion served Mrs. Sulzer weil in the capacity 1n which he was engaged. However, his conduct is criticised in that when the purchase of the abattoir was arranged, Zion was engaged by Mr. Jaeger, the owner of the shares in Jaeger Meat Works Pty. Ltd., to negotiate with creditors of that company. When the sale of the abattoir to Mrs. Sulzer was mooted Zion was still a consultant of the company and he certainly took part in the completion of the transaction with Mrs. Sulzer. He received a fee of $15,000 from Jaeger's Meat Works. It was of course of advantage to Zion that Mrs. Sulzer should buy the abattoir because he had in mind arranging to serve her as a_ consultant at a fee to be arranged. That fee was arranged at $25,000 for a year's consultancy. It is said, and rightly so, that Zion had allowed himself to be in a position where there was a conflict of interest and duty to Mrs. Sulzer. And it is added that it might have been this factor which induced Zion to overlook the fact that the accounts of Jaeger Meat Works had not been brought up to date for three years. And the fact that the debts of Jaeger Meat Works were greater than was stated by the company might have been discovered if Zion had not had an interest in the completion of the sale. 46. It is said by Zion that the purchase was satisfactory and that the value was in the assets. He pointed to the security by Esanda which stood at $200,000 at the time, as evidence of the value of the establishment. He pointed also to the fact that when Jaeger Meat Works endeavoured to obtain an order for the rescission of 1ts contract with Mrs. Sulzer she resisted that suggestion and deposed in an affidavit dated 16 September 1983 that "the overall position of the company has vastly improved since I have assumed control of it and TI have come to arrangements and compromised all the significant debts of the company which have not been repaid. The company is now solvent and I propose to continue to operate it. I deny that there is any intention to liquidate it or to strip it of its assets." The fact that Mrs. Sulzer was satisfied with the purchase is a relevant matter. But it is true that there were various untied ends in the transaction which led to litigation and possibly loss. And there is the chance that a person playing the role which Zion played in the transaction, but not subject to a conflict of interest, would have unearthed the matters which led to the litigation. Tt is a valid and serious criticism of Mr. Zion that he permitted himself to play that role in the conflict situation in which he stood. 47. There 1S another aspect of the relationship between Zion and Mrs. Sulzer which is of importance. It 1s said that by reason of the functions performed by Zion in the course of this relationship he committed a breach of s.227 of the Companies (Victoria) Code. That section provides, as follows: "227(1) CInsolvent under administration] A person who is an insolvent under administration shall not be a director or promoter of, or be in any way (whether directly or indirectly) concerned in or take part in the management of, a corporation without the leave of the Court." The functions performed by Zion were, the conduct of ali negotiations with Westpac concerning the bank accounts of Jaegers Meat Works Pty. Ltd. and Mrs. Sulzer, the conduct of all negotiations with Esanda Ltd. with regard to mortgage repayments, arranging for the drawing up of all legal documents concerning the affairs of Jaegers Meat Works Pty. Ltd., assisting in negotiating killing contracts for the abattoirs and the method of payment thereunder, the exercise of some supervisory control of the cheques to be drawn against the bank accounts of the company and Mrs. Sulzer and to exercise some control of their Melbourne office in the absence of Mrs. Sulzer in Tatura, the conduct of negotiations with the Department of Agriculture and the Department of Primary Industry with respect to the requirements of those departments concerning the physical condition of the abattoir and payment of departmental fees. These functions were comprehensive. 48. The question is whether the performance thereof constituted management or being directly or indirectly concerned in the management of Jaegers Meat Works Pty. Ltd. within the meaning of s.227 of the Code. To my mind management in the context of that section must refer to the decision making activities of those in control of the company concerned. It appears to me that a person engaged to perform and performing the function of negotiating a loan or an extension of time to repay a_ loan or to negotiate an extension of credit with a creditor is not engaged in managing the company. Management in this context would seem to involve deciding what steps to take in carrying on of the business of the company. When persons carry out functions which management has decided shall be carried out or to refrain from carrying out functions not considered advisable by management they are not involved in the Management of the company. When a person is engaged, as for example a commercial traveller, to seek orders or make contracts and even to extend discounts, he is not engaged in management when he does those things. Thus to decide whether Zion was concerned in the management of the company it is not to the point to ask whether he advised Mrs. Sulzer to take this course or that. The question is whether he was so close to the decision making process as to, for instance, whether an overdraft should be sought, or whether certain reconstruction works should be undertaken or certain insurance contracts should be obtained, that it is proper to infer as a matter of fact that his contribution to those matters exceeded mere 49. advice and became part of the operative process of the making of those decisions. And the more of such advice the more diversified the subject or whether such advice was given the more it may appear as though the adviser is really a decider, the more necessary it is to look closely at the true substance of the situation. On the whole what Zion did in performance of these functions does appear to be either to lay the foundation for Mrs. Sulzer to make the decisions or to carry out tasks, such as obtaining killing contracts, which were not really tasks of management. The section is expressed in the widest possible terms to embrace participation in any way in the operation of management. See Re Campbell (1984) 78 Cr App R 95 at pp.99 and 100. But of course that in which the bankrupt participates must be an operation having the quality of management and not mere consultation or implementation of management decisions. It is said that the payment out of the bank account of monies for Zion's private purposes and the payment into the account of monies to meet such payments constitutes management of the company. Those incidents constituted use of the relevant bank account according to a decision made by Zion either by agreement with Mrs. Sulzer or otherwise, but subsequently adjusted. It may well be that this last mentioned conduct is to be regarded as an infringement of s.227, but I doubt that it was an exercise in the management 50. of the company in the relevant sense. Nevertheless, 1t has to be regarded a conduct infringing the provisions of the section or nearly approaching thereto, and for current purposes conduct of significance as such. It was said that tasks carried out for Marble Mountain were of the management category but they were not clearly defined in the evidence. The inference that those tasks constituted being concerned in the management of the Marble Mountain Company does not, in my opinion, arise While in the USA in May 1980 Zion purchased an area of land in Tucson, Arizona. The purchase price was $39,760 payable in 1988 with interest at ten percent per annum. The transaction appeared profitable because Zion could see that a subdivision into eight lots could be achieved. Before his return to Australia certain lots had been sold on terms and Zion was in receipt of instalments of principal and interest payable monthly. The Trustee became aware of the project in 1980. On his return to Australia it was recognized as between Zion and the Official Trustee that the beneficial interest in the project was in the Official Trustee. In 1983 Zion accounted to the trustee for instalments received by him to 51. that date. During 1981 and in 1982, Zion at the request of the Official Trustee negotiated, apparently through a real estate agent named Bauer for the sale of the balance of the land. By November 1982 all the land was sold. The last sale was to one Reed of Lot 3/4 being Lot 3 and part of Lot 4, Lot BA and Lot 6. The purchase price was $42,000. The deposit was $8,000, but commission payable on the sale was $3,570. The balance was payable by monthly instalments of $458.78 including interest at 10.5 per centum until the obligation was discharged. At that stage it appeared that Lots 1 and 2 had been sold for $13,500 each on contracts providing ten year terms. These contracts were subject to a security thereover in favour of one Mr. Duane Arthur who had originally held a security over the whole of the land for $40,000 lent to Zion no doubt to finance the purchase and to provide Zion with money for current living expenses. The amount now outstanding on the security of the sale of contracts of Lots 1 and 2 is now said by Zion to be not less than $3,000 plus interest. The amount remaining unpaid under these contracts is not in evidence. However, it is possible that there will ultimately be a substantial surplus after providing for Mr. Arthur's security. Lots 4/5 consisting of Lot 5 and part of Lot 4 was' sold to one Crouch who has paid in full and taken title. The contracts between the bankrupt in relation to all the lots save Lot 1 and Lot 7 were before the Official Trustee at all 52. material times. Also the Official Trustee was aware of the terms of the sale of Lot 1 and understood that Lot 7 had passed to Bauer to discharge his claim for commission on finding purchasers for the land. In 1982 and 1983 the Official Trustee was disposed to discount the contracts and dispose of the balance of the land on cash terms. The prospect of the bankruptcy being continued for ten years was unattractive. The services of the bankrupt were enlisted to this" end. The bankrupt produced various persons who were interested. They were identified to the Official Trustee and with at least one of them, one Armitage, the Offical Trustee actively negotiated over a lengthy period. The proposed transaction was not concluded. There were, however, conversations with the bankrupt with a view to him finding a person who would buy for cash the interest in the estate in various lots. It would seem that the Trustee took the view that Lots 1 or 2 were of no value to it in view of the claims of Mr. Arthur and that Lot 7 had passed to Bauer. It appears that in February 1983 an officer of the Official Trustee with the assistance of the bankrupt made calculations of the outstanding balances due by the purchasers of Lots 3/4, 6, 8A and 8B for the purposes of assessing the cash amount for which the Official Trustee would release his 53. interest in those lots. It would seem that the view taken by the Trustee was that it was only in those lots that any interest of the estate persisted. As a result of the calculations it was intimated to the bankrupt that the Official Trustee would waive all claim to the land on payment of $1,747.96 in respect of Lot 8B and $15,000 in respect of Lots 8A, 6 and 3/4. In due course the bankrupt paid to the Official Trustee various sums of money making up $16,747.96 and receipts were issued to him in respect thereof, namely: (a) ong March 1983, "Received from Alfred Yehiskel Zion part instalment, Lot 8B Tucson U.S.A., $1000". (b) On 11 March 1983, "Received from Alfred Yehiskel Zion balance instaiment Lot 8B Tucson U.S.A. $747.96". (c) On 5 May 1983, "Received from Alfred Yehiskel Zion lst instalment of discounting Lots 8A, 6, 3/4 Tucson U.5.A. - $5,000". (d) On 16 June 1983, "Received from Alfred Yehiskel Zion 2nd instalment of discounting lots 8A, 6 and 3/4 Tucson U.S.A. $5,000." (e) On 28 July 1983 "Received from Alfred Yehiskel Zion third and final instalment of discounting lots 8A, 6 and 3/4 and lot 8B Tucson U.S.A. $5,000." 54. It appears that the various persons whom the bankrupt had thought he could interest in these contracts were identified bv him to the Official Trustee's officer. But none of these persons were sufficiently interested to conclude the transaction. In those circumstances the bankrupt himself produced the money and the transaction proceeded as indicated un the receipts. It is said that the bankrupt was not entitled to become the purchaser of the contracts because the arrangement between him and the Trustee was one of agency. In that event he could not validly become the purchaser without full disclosure. See P.D. Finn, Fiduciary Obligations p.199 et seq. The bankrupt does not state that he told the officer of the Official Trustee that the instalments the subject of the receipts were his own money and that he would be seeking a release to himself on the Trustee's claim to the contracts or the land. The officer with whom the negotiations were conducted gives no evidence at all, although available to do so. There is a distinction to be found in the Official Trustee's file between the proposed transaction with Armitage and that relating to the transaction in connection with which Zion paid the monies mentioned above to the Official Trustee. There the transaction was taken up personally with the person recommended by the bankrupt. But in March, April, May, June and July 1983, when it is clear an arrangement had been made for payment by instalments of the sums of $1,747 and $15,000, one looks in vain in the file for the slightest suggestion 55. that the Official Trustee considered he was dealing with a person other than the bankrupt. Also, in 1983 the Official Trustee armed the bankrupt with an authority such that a transaction with any person might have been completed thereunder. And of course the Official Trustee had no intention of ever making an enquiry as to what transaction, if any, was made. On these facts I would have concluded that the Official Trustee made a transaction with the bankrupt personally, leaving him at liberty even to make a profit or to purchase the contracts himself. It appears nevertheless, that the probability is that when Zion paid the money to the Official Trustee he did hope to involve an associate of his one, Price, in taking up the American contracts. This hope was not realised. It was not until December 1985 at the earliest that the Official Trustee learned that the person whom the bankrupt had interested or hoped to interest in the Tucson land was Mr. Price. And at the same time that Price's identity was disclosed the bankrupt indicated that Price wished his identity to be kept secret. The Official Trustee indicated that this might not be possible. Later the bankrupt indicated that the purchaser or proposed purchaser or he himself wanted the $15,000 to be repaid by the Official Trustee to him as he had provided that money and the purchaser or proposed purchaser had withdrawn. The conversations are confusing in 56. that between April 1983 and December 1985 no step had been taken by the Official Trustee to ascertain who, 1f anybody, was actually the purchaser of the Tucson land contracts, and apparently, had no intention of taking any such step. The Official Receiver said the Official Trustee had no interest in the identity of the purchaser. He seems to have assumed that it was some person other than the bankrupt, but did not know who it was. He would never have discovered the person put forward as purchaser or proposed purchaser had the bankrupt not told him in December 1985. It 1s surprising indeed, if it was the belief of the Official Trustee that the bankrupt was to bring into contractual relations with some person with whom the bankrupt was to make a contract on its behalf, or had made such a contract, that the Official Trustee did not take steps to formalise its relationship. Until that was done it would have no knowledge of the terms of the actual transaction arranged by the bankrupt on its behalf. A document dated 18 February 1983 supports the notion that the bankrupt had a role exclusively as agent in relation to the disposal of the contracts although it is perhaps equivocal. However, the payments by the bankrupt, in his own name, of the instalments totalling $1,747.96 in respect of the Hodge contract, of the $15,000 in respect of the Reed contract, were made over the period 8 March 1983 to 28 July 1983. It was on 29 July 1983 that the Acting Official Receiver issued to the bankrupt a document in the following terms: 57. This 1s to confirm that as the Official Trustee in Bankruptcy has been paid the sum of $A15,000 the Official Trustee waives any further claim to the contract with Henry D Reed in respect of 'the south half of Lot 8, Lot 6, Lot 3, and the west 50 feet of Lot 4' and also the balance owing under the contract with R P Hodge in respect of 'the north half of Lot 8' Jonathan Park estate, Tucson Arizona, USA. DATED this 29th day of July, 1983. CSigned] dg. E. WATSON ACTING OFFICIAL RECEIVER" It was said that the Official Trustee paid to the bankrupt a fee in the way of a commission for arranging the transaction with the putative purchaser of the contracts in respect of which the sum of $16,747 was paid by the bankrupt. I do not think it was. Certainly there was a payment or other consideration to the bankrupt in respect of work, including the making of telephone calls to America, performed by him in relation to the sale of land to persons in America. But I think it is clear that whatever passed to him was in respect of the putative sale to the persons in America and not the sale of the contracts in 1983. Although the Official Trustee was under the belief that a commission was paid in respect of this latter putative deal I think he was in error in this respect. One would have thought that if the Official Trustee had been under the impression that this document was issued for 58. the benefit of a person in relationship with it and from whom 1t had received some $16,747.96 1n consideration, 1t would have been addressed to that person. It is evident that on 17 March 1986 it was made clear by the bankrupt that all thought of there being an effective transaction with a third party had passed away and that "the Tucson land had now reverted to his beneficial ownership". It is in this situation that the Official Trustee has informed this Court that it accepts that the bankrupt has become the beneficial owner of the contracts and that it does not desire to disturb that state of affairs. In addition, it does not seek to establish any residual beneficial interest in Lots 1 and 2 of the Tucson land. There is no evidence from the officer of the Official Trustee who conducted the negotiations with the bankrupt resulting in the decision of the Official Trustee to dispose of Lots 8, 6 and 3/4 and Lot 8B for $16,747.96. He 1s available to give evidence but has not been called. In the circumstances I do not draw any inference against the bankrupt on the allegation that, being an agent to dispose of the contracts, he purchased them himself, It is said that in the calculation of the $15,000 various aspects are of importance. First, there was little corroboration of the statements of the bankrupt as to monies received from purchasers. Second, the inference should be drawn that there was no security in favour of Mr. Arthur in respect of Lots 1 and 2. Third, the figure of $15,000 was 59. arrived at 1n a conversion of American dollars by the officer of the Official Trustee in which he erroneously inverted the figures. The result was to understate the correct figure by about $1,600. As to the matter of corroboration I observe that it would have been relatively easy for the Official Trustee to have sought confirmation of the position relative to each contract. It would seem that all payments were made through the Continental Service Corporation of Tucson Arizona which is apparently an efficient institution. Telephone and other communication would be swift. As to Mr. Duane Arthur it is clear that he originally held a security over all the Tucson land for $40,000. It is clear also that later he held a power of attorney over relevant contracts to secure at least USS10,000. It is clear also that in March 1981, when it appeared that JZion's bankruptcy was to be "invoked here" he cabled Zion stating that if $10,950 plus unterest and incidental expenses due to him were not "taken care of in seven days he would sell the land and inform Lorene Collins Smith the unpaid vendor of this matter as to protect her interest". Finally, the bankrupt tendered in August last a cable purporting to come from Duane Arthur asserting that the sum remaining owing to him is US$3,126 plus interest. This is substantially what the bankrupt swore to. 60. It is said the bankrupt swore in the s.69 examination in 1981 that the Duane Arthur debt had been paid off some time earlier. " He said the same thing in evidence before this Court in this application. Of course he also maintained in this application that the sum of $3,000 odd was still owing by him to Duane Arthur. Iam at a loss to understand the contradiction. It is submitted that it stamps the bankrupt, in this respect at least, as a consumate liar. I do not think this contradiction is evidence of that, although of course Mr. Zion's credibility is under a shadow for different reasons, I see no evil reason for this contradiction. It seems to me unimportant in the totality of the evidence particularly as the Official Trustee does not desire to investigate the situation relating to Lots 1 and 2. If he or the petitioning creditor desired to do this there has been plenty of time to contact Mr. Arthur. He appears to be a man of substance and within reach. As to the error in the exchange rate it seems that the bankrupt was prepared to take advantage of the error, and that is that. Fourthly, it is said that the calculations were made on an unsound basis, favourable to the bankrupt or any purchaser of the beneficial interest in the contracts. It is said that the bankrupt induced the officer of the Official Trustee to a 6l. adopt such basis of calculation knowing it to be unsound. The bankrupt has defended the basis of calculation. It seems to me to be unsound. However, the officer who did the calculations although available to do so has given no evidence. The terms of the relevant contracts were before him and it was according to those terms that the calculation had to be made. The officer is not to be regarded as lacking experience or knowledge to deal with a calculation based thereon and calculations of a similar kind had been made from time to time in the office of the Official Trustee since 1981. And at this stage, although the Judge in this application indicated that the Trustee might care to seek some remedy in respect of the assignment to the bankrupt of the beneficial interest in the contract with Reed, no such remedy is sought. In the circumstances if in fact the calculation is made on an unsound basis, I do not draw an inference that that fact is due to misconduct on the part of the bankrupt. It is apparent that since July 1983 the bankrupt has received from and paid monies to persons in the U.S.A. In these circumstances certain sections of the income tax return for the years ending 30 June 1984 and 30 June 1985, and 62. possibly earlier years were applicable to his affairs. Those sections were items 43 and 48 of the form in the following terms: "43 DIVIDENDS AND INTEREST PAID TO NON- RESIDENTS - Total amount you have paid to, credited to or received on behalf of non-residents OF AUSTRALIA DURING THE YEAR ENDED 30.6.84 (insert 'Nil' if applicable) Dividends Interest YES £ J NOC] YES C J NOC I" "48 OVERSEAS TRANSACTIONS OR INTERESTS Did you own, have or hold at any time during the year (whether directly or indirectly through persons, trust estates, companies or other entities, etc.) any interest whatsoever, whether vested or contingent (including direct or indirect control of income or property), in: (a) any income from sources outside Australia not disclosed elsewhere in this return; or (b) any property (including money) or any - company or other entity, partnership, trust estate or business: -». the interest and/or the income, property, company, etc. is or was outside Australia? vee we we ee we oe we oe ee heed 6 YES CJ NOE J" The particulars sought in these section of the form should have been supplied. They were not. There was no answer in the relevant "Yes" and "No" boxes of the form. As_to this the bankrupt said he considered that only capital was involved, and that there was in the relevant years no taxable income from the overseas transactions. It is apparent that more than capital was involved. Also, 1t is 63. probable that there was a balance of interest received in excess of that paid out. But these points are irrelevant. Information which would have led to the examination of the situation was improperly withheld. This conduct was, in my opinion, reprehensible, at any rate with respect to the years ending June 1984 and June 1985. That until 1986 when the Official Trustee recognized the acquisition by the bankrupt himself of the beneficial interest in the Tucson land contracts and thus of the monies received by the bankrupt in respect thereof, those monies were received by him not as his own but as agent for the Official Trustee might possibly have provided an explanation of the failure to answer the questions. If that were the situation a different light would be thrown on the matter. But no such suggestion was made. Legal Aid Commission In 1985 the bankrupt was provided with legal aid in a substantial sum. Later, the Commission, believing that the bankrupt's affairs might have improved, indicated that the possibility that the bankrupt might be able to recoup the Commission to some extent should be considered and sought the completion of a form provided. This form required information on a comprehensive scale and asked for information as to the income and assets of the bankrupt. The bankrupt completed the form but omitted reference to his interest in the Tucson land contract with Reed. The bankrupt indicated that this was due 64. to inadvertence or misunderstanding between himself and his solicitor. This was a serious non-disclosure, if as seems to be the position that the bankrupt believed at that stage that the beneficial interest in the Tucson land contracts had reverted, or were expected to revert, to ham. 65. General _and_Conclus1on The policy of the law is that a bankrupt shall receive his discharge after three years, or where an objection has been lodged, after five years unless the court decides that it is inappropriate in the circumstances that the discharge then be granted. In the event that the court so decides a discharge will be granted at some later stage if the court on an application by the bankrupt is then satisfied that it is appropriate for that step to be taken. On the issue of appropriateness the court should have regard to the policy of the bankruptcy law that persons who have incurred debts they cannot pay shall be able to obtain a discharge of those debts. This policy is no doubt based upon the view that there is a general public interest in the relief of persons from undue pressure of debts. It is contemplated that during bankruptcy the bankrupt shall continue to earn money according to his capacity and provide for his family, save that he shall not without the consent of the Court be a director of a company or be concerned, directly or indirectly, in the management of a company and not borrow money more than a specified amount without disclosing his status as an undischarged bankrupt. It is proper on the question of the grant of a discharge to consider the extent of the contribution of the bankrupt to the estate. In this case that contribution has been quite small. The position in relation to the Tucson land is 66. relevant. Two comments may be made. First, if, as was. the case, the bankrupt had the financial resources to pay $16,747.96 in repurchasing the Official Trustee's interest in the land by way of investment, it is clear that that sum could and should have been made available to his creditors rather than being used with a view to his own profit. Second, there is every reason why that profit, if any, should accure to the benefit of the estate. On the matter of the grant of a discharge particularly where there is a large deficiency in the estate, a question inevitably arises whether the bankruptcy arose from misconduct in the handling of assets or otherwise. If from misconduct, the possibility of losses being caused to members of the public from possible future misconduct is a relevant matter. Questions of character are involved. As indicated above I believe that this bankruptcy occurred mainly because of business error and miscalculation and not because of commercial misconduct. However, the examination of the bankrupt has revealed faults of significance. Thus, (a) the bankrupt in his capacity as a consultant has permitted himself to promote a transaction of benefit to himself in circumstances where there was a conflict of interest. As indicated above the inference does not arise that this factor actually led (b) - (c) (d) 67. to any party incurring losses but it may have. In the transaction with the Official Trustee concerning the Tucson land the bankrupt failed to correct an error of the officer concerned therein, which he must have realized in calculating the conversion of American dollars to Australian dollars. This operated to the benefit of the bankrupt, of about $1,600 in a transaction of 515,000. This payment was corrected during the conduct of these proceedings. There is ground for concluding that in acting as consultant to Mrs. Sulzer the bankrupt was so far concerned in management of Jaeger Meat Works Pty. Ltd. that he may have contravened the provisions of s.227 of the Companies (Victoria) Code. In his tax returns for the years ending 30 June 1984 and 30 June 1985 and possibly in earlier years the bankrupt failed to make disclosure of his interest in the Tucson land or of facts which would have disclosed such interest. 68. (e) In 1986 he also failed to disclose his interest in that land when stating his assets and income to the Legal Aid Commission which was considering the question of recovery of monies previously paid to him. (f) The bankrupt has not been completely frank with the Court in this application. His conduct in this respect appears to me to stem from the temptation to rush to explanations which for the time are plausible, but not sustainable. Thus his contention, that his receipt of monies from American purchasers of Tucson land were all capital rather than a mix of capital and interest, and therefore was not income for tax purposes, was at best plausible. It is difficult to think that the bankrupt did not realise this when he put the contention forward. Certain of these items constitute serious faults on the record and regrettably on the standards of conduct which the bankrupt has engaged in. They indicate that he did not find difficulty in operating in circumstances where his interests and duty are in conflict. "They indicate that even in dealing with the Court he will, when in a difficult position resort to plausible but misleading contentions. The income tax and legal aid incidents indicate that in dealing with official bodies such as the Taxation Department and Legal Aid 69. Commission the bankrupt has been guilty of misleading non-disclosure, in a material way, in his own interests. I draw the inference that in his future conduct he will not adopt standards different from those described above whether he gains his discharge or not. And in all probability his conduct indefinitely into the future will reflect his mature as described. Nevertheless 1t is true to say according to the evidence that no member of the public with whom he has had commercial dealings either before and after bankruptcy, is shown to have lost money through conduct on his part properly to be described as dishonestly engaged in. If the bankrupt acquired an unconditional discharge, he will be free of the restrictions of s.227 of the Companies (Victoria) Code and to that extent the scope of activities in which he may engage without the consent of the Court, would be increased. The failure to disclose material facts to the Taxation Department and the Legal Aid Commission are important as indicating a departure from standards of business morality. It is doubtful, however, how far such incidents evidence a likelihood of departure from proper standards of conduct likely to be engaged in by the bankrupt in commercial dealings with citizens generally in the public commercial area with 70. which the the law of bankruptcy is particularly concerned. In the governmental area obligations are prescribed by statute and compliance 1s enforced by statutory provision. It is apparent that the bankrupt has business' skills which are and can in the future be usefully employed whether he remains undischarged or is granted a discharge. Inevitably, in either event, the public is exposed to such risks as appertain to dealing with the bankrupt with all his characteristics both good and otherwise. If, while undischarged he were inclined to act in commercial dealings with impropriety there could be plenty of mishaps. It appears to me that the policy of the law is based upon the notion that, save in exceptional cases, it is beneficial both in the interests of the bankrupt and those of the community that the bankrupt will return to commercial life earlier or later according to the circumstances. To my mind it is certainly not in accordance with the policy of the law that a person whose bankruptcy was brought about by commercial reverses not due to misconduct or dishonesty should remain undischarged forever, even if the deficiency be large. And I think the same is generally true even if during years of bankruptcy the bankrupt has failed to measure up to the requirements of propriety in certain respects. I draw the inference that in making business decisions the bankrupt has a disposition not to shrink from deciding them in his own favour in doubtful situations. And in 71. relation to official bodies he may conceal material facts injurious to his interests. The question arose whether a person with such characteristics having once been made bankrupt should ever be discharged. He certainly lacks qualities of character of the ideal business man. However, it is my view that it is not only those of high principles who are entitled to be discharged. Of course the more likely it is that such defects as there are miqht operate to cause losses to persons with whom he may deal, the longer it may be that he should remain under the constraints of bankruptcy. Presumably delay might tend to modify such defects. But in relation to this bankrupt I do not think so. However, such characteristics are facets of ordinary commercial life arising from the imperfections of a great number of citizens. These imperfections it is the function of the law of the land to control. It is not a feature of the ordinary commercial life of the community that persons whose conduct might, but for the law, fall below required standards, are excluded. But = such persons who have been made bankrupt must suffer a period of partial exclusion for a period. The question is how long and under what conditions? In this case it appears to me that there is an appropriate route, alternative to further delay in the granting of a discharge. I think a partial exclusion from full participation in commercial life, but less restrictive than that which at present applies, namely a prohibition from occupying the position of director of a company, should be continued for three years. It is my view that this, together 72. with the liability to pay a large sum in costs as a result of these proceedings, the surrender of his current beneficial interest in the Tucson land and the non-recovery by him of the $16,747 already paid in respect of such interests will constitute substantial and lasting economic pain reminding the bankrupt of the necessity to avoid ambiguous situations. The total duration of the status of an undischarged bankrupt is a matter to be taken into account. That is clearly a concern of the Act, although time must give way to circumstances. See Re English (1946) 14 ABC 47. However, seven years is a substantial period for the bankrupt to suffer the restraints appertaining to the status of an undischarged bankrupt. His age is also relevant. There 1s one matter which is outstanding and that is the existence of a criminal charge against the bankrupt yet to be heard in the Supreme Court of Victoria. The view I take is that if an offence has been committed it will be dealt with according to the criminal law which is designed to punish and to correct as a self contained operation within that law. Overall the problem before me requires me to consider whether, taking into account all the circumstances referred to above it is in accordance with the policy of the law that the restraints at present arising from the status of an undischarged bankrupt in respect of this bankruptcy should be removed or relaxed. 73. On the basis that there is an order against the bankrupt for costs, and on condition that he undertakes to this Court to hold whatever interest he has in the Tucson land and in any transaction concerning the same for the Official Trustee and to give reasonable assistance to the Official Receiver as required by the Official Trustee including executing any necessary documents, for the realisation of that interest and to refrain from seeking the repayment to him of the sum of $16,747.96 already paid and undertakes to this Court not during three years from this date to accept appointment as a director of a company, the discharge will be granted. I reserve the matter for further consideration, that the bankrupt will by reason of these proceedings suffer a considerable liability for costs. The proceedings have extended over 24 days. The length of the proceedings is largely due to the conduct of the bankrupt, not that it was fraudulent but that it involved activities conducted in ambiguous situations and in a somewhat rash manner. I certify that this and the preceding seventy-two (72) pages are 4 true copy of the Reasons for Judgment herein of the Honotrrable Mr. Justice Smithers. Dated: 23 September 1986 Associate