a5 / 3S is} OF I No. 673 of 1984 js) tH io JN_BANKRUPTCY OF VICTORIA Re: DONALD BROOKES LOCKYER A Bankrupt Ex Parte: DONALD BROOKES LOCKYER Applicant and 0. s N ion'g Respondent sor ae ard . \ i COURT: | NORTHROP J 8 ( 2.220? srgsy DATE : 13 APRIL 1988 ' Yo a PLACE: MELBOURNE Sa YY EX _TEMPORE REASONS FOR JUDGMENT The bankrupt became bankrupt on 4 September 1984, on the filing of his own petition under s.55 of the Bankruptcy Act 1966. At that time, he was an undischarged bankrupt pursuant to a bankruptcy order made in Queensland in 1976 ('the Queensland bankruptcy'). Previously, he had been bankrupt in New South Wales in 1962, but he was discharged from that bankruptcy in 1974 and there had been a dividend of 100 cents in the dollar paid on proved debts in that first bankruptcy. tJ By application dated 7 December 1987, the bankrupt has applied, pursuant to s.150 of the Bankruptcy Act, for an order of discharge. Section 149 of the Bankruptcy Act did not provide for the automatic discharge of the bankrupt after the expiration of three years from the bankruptcy of 4 September 1984, because at that time, namely 4 September 1987, he was an undischarged bankrupt from an earlier bankruptcy - see sub-sections 149(1) and 149(3)(a). Because of the operation of that paragraph, in the present case no objection to the automatic discharge was lodged pursuant to Paragraph 149(3)(c). About the same time as the application for discharge of the bankruptcy of 4 September 1984, the bankrupt applied for the discharge of the Queensland bankruptcy which had commenced in 1976. The application in relation to the Victorian bankruptcy came on for hearing before the hearing of the Queensland application, and the Victorian hearing was adjourned to enable the Queensland hearing to proceed since it was dealing with the first of the existing bankruptcies. On 24 March 1988, the Federal Court of Australia, constituted by Pincus J. made an order for discharge from the Queensland bankruptcy. It was an unconditional discharge. And so, for present purposes, the Court is faced with the position that there is in existence one bankruptcy only, namely the bankruptcy which flowed from the filing of the debtor's petition on 4 September 1984. Under sub-section 150(1), a person who 15 a bankrupt may apply to the Court for an order of discharge at any time after (a) his public examination has been concluded - in the present case that has not been concluded or (c) the expiration of the period of 12 months commencing on the date of the bankruptcy. That 1s established here, and that is the ground upon which the application for discharge is based. Under sub-section 150(3), on the hearing of an application, the Court shall take into consideration a report in writing by the Trustee concerning the bankrupt, his conduct, trade dealings, property and affairs, both in respect of the period before and the period after the applicant became a bankrupt, and under sub-section 150(12), such a report is, for the purposes of 3.150, prima facie evidence of the statements contained in it. In addition, under sub-section 150(4) the Court may hear further evidence relevant to the matter, and in the present case the bankrupt has given evidence to the Court. Sub-section 150(5) provides that the Court shall, if any of the matters specified in sub-section (6) 18 established, (a) refuse to make an order of discharge, or (b) make an order of discharge but suspend the operation of the order as the Court thinks proper, either unconditionally or subject to conditions. Sub-section (6) sets out the matters upon the establishment of which the Court may exercise a power specified in sub-section (5), and in the present case, the Trustee is relying upon paragraph (i) namely that "the bankrupt has been convicted of an offence against this Act weees OF Of any other offence related to his bankruptcy". That paragraph is of importance in view of the facts which [I shall refer to shortly. Sub-section 150(9) provides: "Where none of the matters specified in sub-section (6) is established, the Court may-- (a) refuse to make an order of discharge; (5) make an order of discharge; or (c) make an order of discharge but suspend the operation of the order as the Court thinks proper, either unconditionally er subject to conditions." The effect of sub-section (5) and sub-section (9) can be summarised but before [ do that I read sub-section (10): "The Court shall not, under sub-section (9), suspend the operation of an order of discharge beyond the period of 3 years commencing on the date of the bankruptcy." So in the present case, if the Court finds the establishment of paragraph (1) of sub-section (6), it has power to suspend the operation of any order made, 1f it makes such an order, but under sub-section (9) if the establishment of that ground is not made, then 1t cannot on the facts of this case, suspend the operation of the order because a period of three years has already expired from the date of the bankruptcy. Sub-section (7) has a similar limitation period, but a period of five years commencing on the date of the bankruptcy. _- The report of the Official Trustee sets out a number of matters dealing with the three bankruptcies of the bankrupt. In the first bankruptcy, the creditors who proved were paid in full; in the second bankruptcy 23.78 cents in the dollar were paid; in the third bankruptcy, for practical purposes, there will be almost nothing paid, but the substantial creditor of the third bankruptcy is the Commissioner of Taxation, to whom an amount of almost $5-m is owed, other creditors being owed far lesser amounts. The main creditors have proved debts totalling $4.76-m. The assets realised amount to almost $52,000 and there may well be some other assets coming in but nowhere near enough to pay all the debts in full. There was a public examination held in April 1987 and adjourned to a date to he fixed. The bankrupt is aged 58 years. He was married but 15 now divorced. At the time of his bankruptcy in September 1984 he was employed part-time as an accountant receiving approximately $150 gross per week. It appears that the bankrupt attracted the attention of the Royal Commission into the Federated Ships Painters and Dockers Union, and subsequently pleaded guilty to charges of conspiring to defraud the Commonwealth pursuant to the provisions of the Crimes Act 1914 (Cth). In August 1986 he was imprisoned for that offence. The tax avoidance activities upon which the criminal proceedings were based are claimed by the bankrupt as being, in his opinion, quite lawful at the time, but nevertheless any monies he received from those activities apparently were invested in various forms of real estate and other property, and it is from these that there may he further monies coming into the estate. 6. The bankrupt attributes his bankruptcy to claims by the Taxation Department, and in the opinion of the Official Trustee, the major factor contributing to the bankruptcy was the bankrupt's promotion of tax avoidance schemes. The Official Trustee states that the conduct of the bankrupt since the date of bankruptcy has been satisfactory, but that his conduct prior to the date of bankruptcy was unsatisfactory for reasons which are then set out. The Official Trustee also states that he does not allege that the bankrupt has committed any offences against the provisions of the Act. The adverse matters referred to are set out in paragraph 12 of the report of 3 March 1988, and added to by a supplementary report dated 15 March 1988. These adverse matters relate to convictions of the bankrupt arising from conduct during his Queensland bankruptcy, but before the Victorian bankruptcy, being 22 charges of leaving Australia without the written consent of the trustee, and five charges of failing to hand over his passport. It is also alleged that he was convicted of an offence relating to his current bankruptcy namely conspiring to defraud the Commonwealth of revenue, and I will come back to that matter later, because this relies very much on the construction to be put upon Paragraph 150(6)(i) of the Bankruptcy Act. The other offences referred to are in the supplementary report which relate to details of convictions under paragraph 269(a) of the Bankruptcy Act, namely obtaining credit to the extent of $500 or more from a person, without informing that person that he was an undischarged bankrupt. Those offences apparently were all committed before 4 September 1984, being 7. the date of the current bankruptcy. One offence against Paragraph 265(1)(a) of the Bankruptcy Act is recorded but again, this occurred before 4 September 1984. Eight offences under other statutes are recorded but again all occurring before 4 September 1984, The Official Trustee opposes the application on the grounds which are set out. It is claimed that the bankrupt has not given cogent grounds for seeking a discharge from bankruptcy and reliance is had on Re Maher (1985) 7 F.C.R. 240 and an unreported decision of the Federal Court constituted by French J in Re Mamo, judgment in which was given on 12 February 1987. The Official Trustee also relies upon unsatisfactory conduct prior to the date of bankruptcy and the fact of the undischarged bankruptcy in Queensland. That last matter no longer applies. In these circumstances 1t is necessary to decide whether s.150(6)(i) has been established in this case: That paragraph reads as follows:- "The matters upon the establishment of which the Court may exercise the powers specified in sub-section (5) are as follows:-- (a) cancnee (i) that the bankrupt has been convicted of an offence against this Act or the repealed Act or of any other offence related to his bankruptcy." Qn its face, that paragraph applies to offences which have been committed during the period of the bankruptcy from which a bankrupt is seeking to be discharged. In the Present case there is no claim made that the bankrupt has committed or been convicted of an offence in relation to his conduct during the period of his third bankruptcy commencing in September 1984. Likewise the second part of that paragraph refers to any other offence related to his hankruptcy. On its face, this refers to the bankruptcy which is the subject of the application for dischage. It was argued that the conviction for the conspiracy to defraud the Commonwealth was an offence relating to his bankruptcy, but in my opinion that is not correct. That offence related to actions taken by the bankrupt before he became a bankrupt in September 1984 and it cannot be said that those offences related to a subsequent bankruptcy. The word "related" must be given wide meaning but on any view, in my opinion, it cannot refer back to and include conduct which occurred before the bankrupt became bankrupt. It may well be, and I express no view on this, that in the application for discharge in relation to the Queensland bankruptcy, the convictions referred to in the Official Trustee's report may well have been offences or convictions within paragraph (i) and should have been taken into account by that Court. I am bound by the order made that the bankrupt be discharged from his Queensland bankruptcy. Accordingly on this construction of paragraph (1), and I can see no other valid construction, the Official Trustee has not established any matter within paragraph 150(6). Accordingly, the power which I must exercise is not that conferred by sub-section (5) but by sub-section (9) of 8.150. Even under that sub-section, the Court has a discretion to refuse to make an order of discharge, but on the facts of this case it cannot suspend the operation of the order and cannot make it a conditional or unconditional suspension because the three year period referred to in sub-section (10) has already expired. The applicant is now 58 years old. He has been an undischarged bankrupt since 1976 and an undischarged bankrupt under his latest bankruptcy since September 1984. He proposes to engage in activities of producing a financial newsletter based upon information received from public companies, collating that information and putting it in a form which can be understood by subscribers to the newsletter. The basis for granting discharges have been discussed in a number of cases. It is discussed at some length by Smithers J. in the case of Re Zion, unreported, 26 September 1986. The whole purpose of bankruptcy is to enable the trustee to obtain the assets of a bankrupt and distribute 10. them to the creditors who have proven in the bankruptcy, and in due course to allow the bankrupt to clear the plate, as it were, and to commence again. This is recognised by the amendments to the Bankruptcy Act from time to time which provide for the automatic discharge after a period of years which is now three years, having been reduced from a longer period, in the normal course of events. It 1s extended to five years in certain circumstances. In the present case the bankruptcy was extended beyond the three years because of the existence of the Queensland bankruptcy. At the same time the public interest requires a discharge to be delayed or made conditional if the character of the bankrupt, and I quote from Smithers J. in Re Zion, ".... indicates that the return of the bankrupt to the commercial world in full freedom might involve unacceptable risks 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 activity of the applicant, it is appropriate that the discharge be granted. It should be noted that Mr Zion did get his discharge from bankruptcy. In Re Maher, (1985) 7 F.C.R. 240, Woodward J. said at p.246: "An application for discharge from bankruptcy is never treated lightly by the Court. As with the granting of a sequestration order, an application for discharge involves looking beyond the interests of the applicant and his or her creditors to considering both the ll. interests of the public and commercial morality, (see Re Mallan (1975) 25 FLR 20, (1981) 57 FER 320 and Re Reilly, (1979) 36 FLR 268 at 278." There seems to be no doubt that in the present case the real reason for the bankruptcy was the unsuccessful actions by the bankrupt in engaging in tax avoidance schemes. He has paid the penalty for engaging in those activities by being imprisoned for the offence of conspiring to defraud the Commonwealth. He has also been made liable to pay large sums of taxation monies to the Commissioner of Taxation. Apart from those activities, there is no suggestion that the bankrupt has engaged in a series of commercial transactions by which a large number of people have been deprived of assets, and in this regard the facts of this case are very different from the facts of Re Mamo, above. On the face of the facts of Re Mamo, there is an apparent similarity with the present case, but in my opinion, each case must be treated on its own particular facts and in the light of the facts established. In the present case I have already indicated that the real problem here was the action by the Bankrupt in engaging in tax avoidance schemes, and he has paid the penalty for so doing. Society has punished him. He has been a bankrupt now for something over three years. Under normal circumstances he would have got an automatic discharge at the end of three years, but for the Queensland bankruptcy. That bankruptcy has been discharged. It is possible that even now, if the bankruptcy is not discharged, the Official Trustee could lodge an objection under 2.149 of the Act, but it is clear that 8.149 of itself no longer 12. Operates because at the time it would have come into operation there was no automatic discharge because of the Queensland bankruptcy. It is important that a bankruptcy should not be continued unnecessarily, and I see no reason why, upon the facts of this case, an order for discharge should not be sade. Accordingly I propose to grant the application and to make an order of discharge. LL aS Se a, ) oaily that this and the eleven (11) wailing pages are a true copy of the _ Sezcors for Judgment herein of the ; .cnourable Mr. Justice K (Y\ Norihag ' Sporoy # 10a Associste Saad: 13. Qper iz. i a at