» Ws JUD 4 hi GRINT oA Ge. Pa ps BANKRUPTCY - application for discharge - objection by Official Trustee - unsatisfactory conduct alleged - imprecise wording - misconduct under sub-s. 150(6) shown - choice between refusing discharge and suspended discharge - factors affecting discretion - risk of breach of conditions - undesirability of continuing court supervision ~- little basis put forward for discharge ~- history of disregard of creditors' rights - application dismissed. Bankruptcy Act 1966 s.149, s.150 Re_ Cook: Ex parte Cook (ynrep. Toohey J. 4/4/85) Van Reesema v Official Trustee (1983) 69 FLR 424 Re: Zion; Ex parte The Bankrupt (unrep. Smithers J. 26/9/86) RE: HENDRIKUS JOHANNES BOZUWA FX PARTE: HENDRIKUS JOHANNES BOZUWA NO. 716 of 1983 FRENCH J. 18 AUGUST 1987 PERTH IN THE FEDFRAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AIlISTRALIA NO. 716 OF 1983 RE* HENDRIKUS JOHANNFS BOZUWA Bankrupt EX PARTE: HENDRIKUS JOHANNES BOZUWA Applicant MINUTE OF ORDER JUDGF MAKING ORDER: FRFNCH J. DATE OF ORDER: 18 August 1987 WHERE MADE: Perth THE COURT ORDERS THAT: The application is dismissed. Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankrupty Rules. IN THE FEDERAL COURT ) OF AUSTRALIA ) GENERAL DIVISION ) BANKRUPTCY DISTRICT ) OF THE STATE OF ) ) WESTERN AUSTRALIA No. 716 of 1983 Re: HENDRIKUS JOHANNES BOZUWA Bankrupt EX PARTE: HENDRIKUS JOHANNES BO2UWA Applicant CORAM: FRENCH J. 18 AUGUST 1987 REASONS FOR JUDGMENT Hendrikus Johannes Bozuwa became a bankrupt on his own petition on 28 October 1983. In the ordinary course he would have been discharged on 28 October 1986 pursuant to sub-s.149(1) of the Bankruptcy Act 1966. However on 4 December 1984, the Official Receiver filed a notice of objection to discharge under sub-s.149(3) of the Act. Assuming the validity of the notice, its effect was, by virtue of sub-s.149(3), to prevent Bozuwa's discharge except by order by the Court or until the objection lapsed or was withdrawn. Bozuwa has therefore applied to the Court under s.150 for an order discharging him from his bankruptcy. 2. The ground of the objection as framed in the notice filed by the Official Trustee is as follows:- "That the conduct of the bankrupt, either in respect of the period before or the period after the date of bankruptcy, has been unsatisfactory." No challenge was made to the validity of the notice, but as framed, it leaves something to be desired. It repeats the words of the relevant paragraph of sub-s.149(4) of the Act which provides:- "(4) An objection shall not be entered under paragraph {(3)(c) other than on one or more of the following grounds: (d)}) that the conduct of the bankrupt, either in respect of the period before or the period after the date of the bankruptcy, has been unsatisfactory." Paragraph (da) contemplates that an objection based upon its provisions will specify one or other or both periods as that in respect of which the bankrupt's conduct has been unsatisfactory. As framed, the objection does not specify any period. A like observation was made by Toohey J. about an objection worded in the same terms in Re Cook: Ex parte Cook (unrep. Toohey J. 4/4/85). 3. The power conferred upon the Official Trustee of preventing a discharge by entering an objection attracts an obligation to carefully consider whether there 1s sufficient basis for an entry of the objection upon one or more of the available grounds - Van Reesema v Official Trustee (1983) 69 FLR 424. It necessarily follows that the ground of objection must be expressed with some precision. As the point was not argued in the present case, T shall proceed upon the assumption that the objection is effective. That assumption, of course, does not determine the matter of validity one way or the other. The history of the events surrounding the bankruptcy 1s set out comprehensively in the report of the Official Trustee. In his evidence Mr Bozuwa was taken through that document paragraph by paragraph, commenting and elaborating on some of the material, but not substantially contradicting the bulk of it. AS appears from the report, he was 51 years of age when he became a bankrupt in 1983. He had returned to Australia from Holland on the very same day. It was his second bankruptcy, the first having occurred in Northern Queensland in 1966. He was discharged from that bankruptcy after the expiry of the applicable statutory minimum period, which was then 5 years. 4. In 1977 Mr Bozuwa and his then wife bought a house and land at Kalamunda. The history of events preceding that purchase seems to have involved some kind of development joint venture with a woman called Brouwer but nothing turns on that for present purposes. The home so purchased was subject to a first mortqage in favour of Permanent Investment Building Society. In 1978 a comnany called Moxan Pty Ltd, of which Bozuwa was a director and shareholder, bought land at Railway Parade, Glen Forrest with finance from Fsanda Ltd in the amount of $15,000 secured by a second mortqage over the Kalamunda home. This company seems to have been a vehicle for another joint venture involving Mrs Brouwer, Mr Bozuwa and another woman. The company operated the businesses of a liquor store, a grocery and takeway food shop from the premises. At some time which did not emerge from the evidence, the land was sold to a Mr & Mrs Vallelonga. The company continued to run the buSinesses. In 1981 the company was unable to obtain further credit from the bank. According to Mr Bozuwa it was suggested to him that he should carry on the businesses in his own name and that if he did, the bank would give him fresh finance to tide him over until they could be sold. 5. In the event the Official Trustee's report shows that he purchased the businesses from the company. The grocery and takeaway food businesses were sold in 1981 to two couples by the name of Van Brakel and Wolf respectively. The purchase price was $16,500. A deposit of $5,000 was paid and the balance secured by a bill of sale over the assets of the business. The balance was never paid. Messrs. Van Brakel and Wolf filed their debtors' petitions after only 4 or 5 months of trading. In August 1982 Mr Bozuwa sold the liquor store business to Mr & Mrs Vallelonga for $32,500. A deposit of $4,875 was paid and the balance of $27,625 was to be payable before Auqust 1987. Stock in trade valued at $12,475 was paid for in full. The proceeds of the sale were applied largely to pay existing debts. For some reason, however, which could not be explained by him beyond a reference to excessive drinking Mr Bozuwa accepted a sum of $4,597 in full satisfaction of the balance of the purchase price owing by the Vallelonga's, namely $10,275. 6. In August 1980 he had bought units erected on land at Jurien Bay originally nurchased by Moxan Pty Ltd. fle paid $115,000 for them, financed with a loan of $95,090 from Alliance Acceptance Company Limited and secured by mortqage over the units. Interest on the loan was $1,400 per month and fell into arrears. Alliance Acceptance ultimately sold the units under the mortgage, leaving an after-sale deficiency of $44,208. In July 1982 Mr Bozuwa went to Holland, which is the country of his birth. He financed the trip from an account with the ANZ Bank, Morley which he had built up with drawings from the liquor store, of $200 or thereabouts per week. While in Holland he lived with friends. In or about October or November 1982 he returned to Australia but only stayed a few weeks before going back to Holland. He said in evidence that he had nothing to stay for. It was put to him by Mr O'Driscoll for the Official Trustee, that at this time he had, and knew he had, substantial creditors in Australia. According to Mr Bozuwa however, his home was on the market then and he believed that he had enough equity in it and the Jurien Bay units to pay out the creditors. 7. While in Holland, between July and November 1982, he had a solicitor looking after his affairs in Perth. In September 1982 the solicitor had supplied him with a list of debts totalling about $20,000.00 on 15 different accounts. It does not appear that he made any attempt to pay any of them. On returning to Holland, however, he took with him gold to the value of about $16,000, traveller's cheques to the value of about $2,500 and opals said to be worth about $300. The $16,000 he said, was partly derived from. the proceeds of the sale of the liquor store, partly from "private money" and partly from money given to him by a Mrs Berghuber. His evidence on the source and amount of the sums involved 1s not notable for 1ts clarity. It is quite apparent, however, that when he left Australia to return to Holland in 1982 he turned his back on his financial responsibilities and took with him money that could have been applied to the reduction of his debts. His idea in taking the gold, he said, was to sell it in Holland and make a profit on 1t. He intended to invest the &. proceeds in goods purchased in Holland for importation into and sale in AuStralia by Mrs Brouwer and Mrs Perqghuber. In January 1983 however, the two women told him that they did not want to proceed with the venture. In the meantime he had begun living with a woman in a de facto relationship in Holland and had spent about $3,000 in furniture and $700 on a car. He was paying a monthly rental of $900. In August 1983 Bozuwa says he decided he would return to Australia to attend to his affairs here. In order to raise the money to do so, he borrowed $2,500 from the Postgiro Bank in Leeuwarden, Holland. His de facto wife, a Mrs Spees, agreed, he said, to pay the amount back to the bank for him. In the event she left her employment and did not repay that loan. On his return to Australia on 28 October 1983, Mr Bozuwa immediately presented a debtor's petition in bankruptcy. It appears that this may have been inspired by advice he had received that a warrant had issued against him. He did concede in his public examination that it was likely that at the time of his departure from Australia, legal proceedings had already been commenced in respect of certain of his outstanding debts. 9. The statement of affairs disclosed assets of $120 and liabilities of $90,800. However proofs of debt totalling $107,883 were received and admitted. Realisation of his assets yielded $1,852. No unrealised assets are left in the bankrupt estate. Official fees and costs of the administration have been paid in full to the amount of $1,224.84. A dividend of 0.71 cents in the dollar was paid to the proved creditors on 4 March. There are no funds held from which any further distribution could be made. The Official Trustee considers Mr Bozuwa's conduct prior to his bankruptcy to have been unsatisfactory for the following reasonsi:- l. He departed Australia whilst knowing himself to be in financial difficulty and contributed to his bankruptcy by the culpable neglect of his business affairs. 2. He contracted a debt provable in bankruptcy without at the time of contracting 1t having any reasonable or probable grounds of expectation of paying it after taking into account his liabilities at the time. 3. He continued to obtain credit upwards of $100 (from the Postgiro Bank 1n Holland) whilst' knowing himself to be insolvent. 10. Having regard to the provisions of sub-s.150(6) of the Act, the Official Trustee contends:- (a) That the Bankrupt has, after knowing himself to be insolvent, obtained credit to the amount of $100.00 or upward. (b}) That, whilst 1n Holland, he borrowed from Postqiro Ryks Post Spaarbank an amount of $2,500, a debt provable in bankruptcy without at the time of contracting it any reasonable or probable grounds of expectation of paying 1t after taking into account his liabilities at the time. (c) That he contributed to his. bankruptcy by the culpable neglect of his business affairs. The effect of the Official Trustee's objection 1s to prevent automatic @Gischarge under s.149 of the Act. This 1s the result of sub-s.149(3)(c) which relevantly provides:- "149(3) A bankrupt 1s not discharged from bankruntcy by virtue of this section if —- (c) The Registrar, the Inspector-General or the trustee has entered, or a creditor has, with the leave of the Court, entered, an objection, in accordance with the prescribed form and in the prescribed Manner, to the discharge of the bankrupt by force of this section and the objection has not been withdrawn or lapsed before the time when the bankrupt would have been so discharged but for this sub-section" This requires that where the objection has not been withdrawn or lapsed the bankrupt, in order to secure discharge, must make application under s.150 of the Act. ll. Sub-section 150(6) enumerates various heads of misconduct, any one of which, 1f made out, will have the result that the court 1s limited to the options specified in sub-s.150(5) in disposing of the application for discharae. That sub-section provides:- "150(5) The Court shall, if any of the matters specified in sub-section (6) 1S established - (a) refuse to make an order of discharge: or (b) make an order of discharge, but suspend the operation of the order as the court thinks proper, elther unconditionally or subject to conditions." There 1s nothing to suggest that the "unsatisfactory conduct" which may ground an objection under sub-s.149(4)(d) is limited to the categories of misconduct in sub-s.150(6). In the event that 1t falls outside any of those categories, the court may refuse a discharge or make an order for suspended discharge under sub-s.150(9). However, in Such a case the court also has the power to make an order of discharge. In the present case the Official Trustee has set out in his report three areas of Mr Bozuwa's conduct said to fall within those enumerated in sub-s.150(6). I am satisfied on the evidence that Mr Bozuwa did contribute to his bankruptcy by culpable neglect of his business affairs, a neglect evidenced by his departure to Holland in July 12. 198? and his return to that country in November. These absences eccurred at a time when his affairs were in a critical state of decline and required his close and continuing attention. I am also satisfied that while in Holland he borrowed an amount of $2,500 from the Postgiro Bank, without having any reasonable or probable grounds of expectation of being able to pay 1t back after taking into consideration his other liabilities at the time. In the circumstances, two of the matters specified in sub-s.(6) have been established. The choice 1s open to the court under sub-s.150(5) therefore to either refuse to make an order of discharge or to make such an order but suspend it unconditionally or upon conditions. Considerations relevant to the exercise of a discretion to discharge a bankrupt under sub-s.(9) are also, 1n my opinion, relevant to the consideration of a suspended discharge under sub-s.150(5). In that context it 1s appropriate to have regard to Mr Bozuwa's reasons for seeking discharge. In essence he thought that 1f discharged he would have a better chance of finding employment. That evidence was not elaborated in terms of any particular job or type of employment that he might have in mind. AS a general proposition however, it can no doubt be accepted that a subsisting bankruptcy is of no assistance and may be an impediment in the search for work. 13. No creditors appeared and onposed the annlication and I think 1t riqht to conclude from the evidence that the creditors do not stand to gain ain anyway from the continuance of this bankruptcy. The effect upon the bankrupt and his creditors of a continuance of the bankruptcy 1s but one consideration, in deciding whether or not to make an order for suspended discharge as distinct from refusing discharge altogether. The public iunterest subsuming commercial morality, is also to be taken into account. In Re: Z10n; Fx parte The Bankrupt (unrep. Smithers J. 26/9/86), Smithers J. said at page 3:- "Public ainterest 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 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 1s 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." To some extent, the objectives adverted to by His Honour can be attained by a suspended discharge subject to conditions which would have the effect of restricting participation by the bankrupt for a time in commercial life even after his discharge has come into effect. re oy ws 14. In this case, however, the evidence indicates a robust disregard by Mr Bozuwa of his creditors' rights and interests. To order a suspended discharge subject to conditions involves an acceptance that the apnlicant will comply with the conditions and necessarily involves the court in the possibility of a continuing supervisory role 1f the conditions are breached. In the present case and having regard to the history of this particular bankruptcy, Tf do not consider that an order suspending the discharge on condition would be in the nublic interest. In my opinion the appropriate course is to dismiss the application. I certify that this and the preceding thirteen (13) pages are a true copy of the Reasons for Judgment herein of His Honour Mr Justice French. Associate: Deveole Wybots pate: \® Praga 1987 Mr D. McKenna appeared on behalf of the Bankrupt. Mr F. O'Driscoll appeared on behalf of the Official Receiver. Date of Hearing: 22 June 1987 Date of Judgment: 18 August 1987 wey