JUDGMENT No. 2107.31. CATCHWORODS BANKRUPTCY - application for discharge - bankrupt to position which brought about bankruptcy - desirable evidence of reason for initial failure be produc interests of commercial community to be considered. Re: Gordon McFarlane Moore-Smith Ex parte: The Bankrupt Qld BN512 of 1985 PINCUS J. BRISBANE 3 NOVEMBER 1987 resume that ed - IN THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD BN512 of 1985 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: GORDON McFARLANE MOORE-SMITH EX PARTE: THE BANKRUPT MINUTES OF ORDER JUDGE MAKING ORDER: PINCUS J. DATE _OF ORDER: 3 NOVEMBER 1987 WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The application be refused. NOTE: Settlement and entry of orders 1s dealt with in Rule 124 of the Bankruptcy Rules. IN_THE FEDERAL COURT OF AUSTRALIA ) GENERAL DIVISION ) QLD BN512 of 1985 BANKRUPTCY DISTRICT OF THE SOUTHERN ) DISTRICT OF THE STATE OF QUEENSLAND ) RE: GORDON McFARLANE MOORE-SMITH EX PARTE: THE BANKRUPT PINCUS J. 3 NOVEMBER 1987 REASONS FOR JUDGMENT This 18 an application for an order of discharge from bankruptcy. The relevant sequestration order was made by me on 22 July 1985 and so the applicant would be discharged, in the ordinary course, in about seven months. The cause of the bankruptcy was the insolvency of a carpet-selling company called Carpets Galore (Brisbane) Pty. Ltd., of which the applicant was formerly a member and director. That company was wound up pursuant to a special resolution on 13 April 1984 and its unsecured creditors were owed sums totalling about $350,000. There 1s no evidence as to the extent of the company's assets. The applicant says that he wishes to be discharged from bankruptcy to re-establish himself without delay in the carpet retailing industry. His affidavit says he would like to be able to hold shares in a company called Carpets Galore (Sunshine Coast) Pty. Ltd., or like companies, and to become a company director. His affidavit says that the present directors of Carpets Galore (Sunshine Coast) Pty. Ltd. want him to come on the board, which he cannot do while an undischarged bankrupt. In addition, his counsel, Mr. Couper, asserts that the applicant is concerned that under the relevant provisions of the Companies (Queensland) Code the applicant might be in a doubtful position because it says that a person such as the applicant "... 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" (see s.227(1) and the definition of "insolvent under administration" in s.5(1) of the Companies (Queensland) Code). The implication 15 the applicant may be perilously close to being, at least indirectly, concerned at present in the management of Carpets Galore (Sunshine Coast) Pty. Ltd. The past connection of the applicant with that company 1s not as clear as it might be. His affidavit says that he started work as a salesman for it in August 1984 and has been in its employment on a full-time basis since that date. It would appear to be a reasonable inference that his taking employment with the Sunshine Coast company was a consequence of the collapse of the Brisbane company. However, in the Official Trustee's report, it is said that the applicant became a director of Moreton View Pty. Csicl on 19 May 1983, which company changed its name on 10 August 1983 to Carpets Galore (Sunshine Coast) Pty. Ltd. It is also said that the bankrupt resigned from his position on 18 April 1984, five days after the resolution to wind up Carpets Galore (Brisbane) Pty. Ltd. It appears, then, that the applicant was a director of both the Brisbane and Sunshine Coast companies before the former was wound up. The Official Trustee's report says that the statement of affairs disclosed assets of $7,760 and liabilities of $86,500. Proofs of debt were lodged in a lesser sum than estimated, namely $75,848. The Official Trustee expresses the opinion that a dividend will not be paid. The Official Trustee reports nothing against the applicant under s.150(6) of the Bankruptcy Act. Further, it 1s to be noted in his favour that, according to the evidence, in the winding up of Carpets Galore (Brisbane) Pty. Ltd. the applicant proved co-operative with the liquidator, and that a Mr. Dennis, who assisted the liquidator, expressed the opinion that "there did not appear to be any question of impropriety on his part in the failure of Carpets Galore (Brisbane) Pty. Ltd." Why that company failed, however, is largely a matter of speculation. The applicant appears to suggest some loose practices on the part of a co-director or directors. He says that there was inadequate consultation among the directors and that he was "largely unaware of the significant expenditures which had been undertaken on behalf of Carpets Galore (Brisbane) Pty. Ltd." Apparently one 5.T. Truscott, a co-director, was the sole signatory to all bank accounts kept by the company ~ an unusual arrangement, I should have thought. The applicant also complains of difficulty in obtaining proper receipts and records of income and outgoings of the company before the liquidator's appointment. It appears that at some stage there was perhaps a connection hetween the two "Carpets Galore companies", but what it was is not made clear. One of the present directors of the Sunshine Coast companies, Phillip Wayne Craig, was also at one stage a director of "Reef Cress Pty. Ltd." which changed its name on 26 March 1984 to "Carpets Galore (Brisbane) Pty. Ltd."; that was shortly before the winding up of the Brisbane company. Mr. B.R.A. Percival, an accountant who was liquidator of Carpets Galore (Brisbane) Pty. Ltd. has expressed the view that the applicant was "in no material way responsible for the failure of the said company, nor did he in any way mislead creditors of the said company". The applicant, says Mr. Percival, thought the company would succeed and was not guilty of any impropriety 1n his duties. It may be that the Brisbane company failed because of undetected improprieties on the part of the applicant's co-directors; the applicant's affidavit perhaps hints at that, but I do not think the Court should be left to guess at such matters. The applicant now seeks to have the ordinary period of bankruptcy abbreviated in order to enable himself to again attain the position of director of a company - one apparently quite like that which failed in 1984. There is no suggestion that he is unable to support himself or meet his obligations during the next seven months, unless he becomes director of the Sunshine Coast company, although I note that he does say that he cannot pay maintenance to his wife because his living expenses account for his income; the amount of the latter is undisclosed. When the case was heard, I was in some doubt as to the proper mode of dealing with the application. Mr. Couper, for the applicant, relied upon the test laid down by Woodward J. in Re Maher (1985) 61 A.L.R. 592. In that case his Honour pointed out at p.601 that it is for the applicant to persuade the Court to exercise its discretion in favour of the discharge and that while "special circumstances" need not be shown, it is necessary to show some "cogent ground or grounds for the exercise of the discretion in his or her favour". Having had an opportunity to consider the papers at greater length, it appears to me clear that this 1s not a case for an exercise of discretion in the applicant's favour, there being no such ground = shown. It would, no doubt, be convenient for him to be restored with all speed to a directorship of such a company as recently failed and brought about his bankruptcy, but I am by no means satisfied that it 1s in the public interest that he do so. The impression created by his affidavit is that Carpets Galore (Brisbane) Pty. Ltd. failed because of some negligence or misfeasance on the part of fellow directors, rather than because of some ordinary business misfortune. It was, of course, the responsibility of the applicant as a director of that company to ensure, as far as he reasonably could, that the company's funds were managed with ast propriety, rather than leaving it to his co-directors to assume sole responsibility. Applications for discharge where the bankrupt's purpose is quickly bankruptcy such cases reason for have some to resume such a position as brought about his or her seem to me be in a special category. I think that in evidence should be placed before the Court as to the failure of the first venture, to enable the Court to confidence that an early discharge would be in the interests of the commercial community. Here, I am by no means satisfied of that and the application will be refused. cortify that this and wha 5 pro-edina peces are a tree coo of v2 rinses for jidrroanc bora oo ist oscur Pr Just co Pincus GET Atlin se Dated 3 November Ife Counsel for the Applicant: Mr. S. Couper Solicitors for the Applicant: Messrs. Cannan & Peterson The Official Trustee appeared in person Date of Hearing: 23 October 1987