Adler, Re G. Adler, Ex Parte G.

[1988] FCA 664

JUDGMENT No. 6.b.k. ‘/1& .

CATCHWORDS

BANKRUPTCY - application for annulment - unsecured debts paid in	full - whether Court’s discretion to annul should be exercised -
relevance of factors additional to the payment of creditors.
Bankruptcy Act 1966 (NSW) - 6.154
Marck v. Treganza (1963) 109 C.L.R. 1
Re Taylor; Ex parte Taylor [l9011 1 Q.B. 744
’Re John Maxwell Craiq ( M O ) 19 A.B.C. 29
RE GEORGE ADLER; EX PARTE GEORGE ADLER
NSW No. 504 of 1916
Davies J. 7 November 1988 Sydney

IN THE ?CDERAL COURT OF AUSTRALIA )

DIVISION GENERAL 1

BANKRUPTCY DISTRICT OF THE STATE OF )	No. 504 of 1976
NEW SOUTH WALES AND
THE AUSTRALIAN CAPITAL TERRITORY

- GEORGE RE : ADLER

Bankrupt

EX PARTE:  GEORGE ADLER

CORAll :	Davies J .
DATE :	7 November  1900

Sydney PLACE:

MINUTES OF ORDER

THE COURT ORDERS THAT:

The motion be dismissed.

NOTE :  Settlement and entry of orders is dealt with in
Rule 124 of the Bankruptcy Rules.

IN THE FEDERAL COURT OF AUSTRALIA	)
1
GENERAL DIVIBION	1 1

BANKRUPTCY DISTRICT OF THE STATE OF 1 No. 504 of 1976

)

NEW SOUTH WALES AND	1 1
THE AUSTRALIAN CAPITAL TERRITORY	)

- RE : GEORGE ADLER
Bankrupt

EX PARTE:  GEORGE ADLER

CORAn :	Davics J.
-	DATE :	7 November 1988
PLACE:	Sydney

REASONS FOR JUDGMENT

This is an application brought by the bankrupt, Mr

George Adler, under s.154(1) of the Bankruptcy Act 1966

(Cth) to annul his bankruptcy. Section 154(1) provides:-

"Where the Court is satisfied	-
(a)	that a sequestration order ought not to have been made or, in the case of a debtor's petition, that the petition ought not to have been presented or ought not to have been accepted by the Registrar; or
(b)	that the unsecured debts of the bankrupt,
being debts that have been proved in the
bankruptcy, have been paid in full or the bankrupt has obtained a legal acquittance of them,
the Court may make an order annulling the	bankruptcy."

The motion is brought on the ground that the unsecured debts

proved in the bankruptcy have been paid in	full. The making
of an order of annulment is discretionary.	It is on the

discretionary aspects of the matter that this application

turns. There has been no opposition to the motion.

An order of sequestration is made not by way of

punishment but for the administration of the bankrupt's

estate in the interests both of the bankrupt and of the

creditors.	If, in the course of administration, it
transpires that the bankrupt's	assets are sufficient to pay

the debts or if the bankrupt is able to arrange for

acquittance of the debts in some other manner, an order	for
the annulment of the bankruptcy may and commonly will	be

made. The bankrupt's affairs will have been put in order

and it is apt that the rehabilitation of the bankrupt should

be completed by the annulment of the bankruptcy. This

power to annul on payment in full of the debts provides an

incentive to a bankrupt to work	for and to achieve payment
in full of his creditors.

An instance of the ordinary case is Marek v.

Tregenza (1963) 109 C . L . R .	1 in which HcTiernan, Kitto and
Menzies JJ. held that a bankruptcy ought to	be annulled

where the bankrupt had, within six months of sequestration,

paid in full all the unsecured debts proved	in his
bankruptcy and had, within a little more than two years after sequestration, paid in full a mortgage debt owed by himrelf and his wife and completed the purchases provided	by
hire purchase agreement6 to which	e was a party at the date
of the bankruptcy.	At pp.2-3, McTiernan J. pointed out

that, though the Court may refuse for good cause to act

under r.154(1) even though all the debts of the bankrupt

were paid, there was no relevant reason in that case for refusing the application. At p.8, Kitto and Menzies JJ. expressed a like view, concluding that no purpose would be

served by the refusal of the application and that
considerations of general policy and of particular justice
combined to entitle the bankrupt to have the sequestration

order annulled.

The contrast is seen in Re John Maxwell Gray (1960)

19 A.B.C. 29, in which Clyne J. refused both a discharge and

an annulment though the bankrupt's debts had been paid in

full. In that case, Mr Gray's estate had been sequestrated

in January 1948.	Shortly thereafter, he went overseas and
committed offences in the United States	of America and in

France for which he was convicted. After returning to

Australia in 1958, the bankrupt paid sufficient moneys to

the trustee to enable payment in full of his creditors. At

p.32, Clyne J. concluded:-

"It would be, in my opinion, wrong to grant the
applicant a discharge or an annulment. If the

court did either, it could be said that the court

was giving him a passport, as	it were, to set up in
business again without some hindrance	or restraint

and that the court considered him a fit person to

receive such a passport. He is not such a person."

Likewire, in Re Taylor; Ex parte Taylor [1901] 1 QB 744, the

Court dirmirred an appeal against a decision of a registrar

refuring to annul a bankruptcy. The decision refusing to annul the bankruptcy was based on the ground that the

bankrupt had falrified his statement of affairs and	had
failed to disclose all his assets. Wright J.	summed up the
position at p.746 as:-

"He could not have got his discharge, even by paying

in full, unless there were some special reason. Why? Obviously because the Legislature thought that, when a debtor who had become bankrupt

committed crimes like these in his bankruptcy, he

ought to be punished by the stigma which attaches

to an undischarged bankrupt, and by whatever

di6qUalifiCatiOn6 are attached to it.	It is sought
to get behind that	by seeking to annul the
adjudication. Sect. 35 gives	a discretion, and it
seems to me that	it was rightly exercised."

In the present case, there are several factors weighing against annulment of the bankruptcy. The first, and perhaps the mo6t important, is that the bankruptcy has

been a long one and necessary	in the interests of creditors.
The order of sequestration was made on	26 October 1976.

Debts were proved to the amount of $324,749. No sum was

recovered from the realisation of assets. An objection to

Hr Adler's	discharge from bankruptcy by force of 6.149 of
the Act was lodged	by the Official Trustee on 27 June 1980,
on the ground that	Mr Adler had a deficiency in excess of

$250,000 and had not given a satisfactory explanation of how

the deficiency arose.	On 24 December 1985, upon the
application of the Law Society of New South Wales,	a
creditor in the bankrupt estate, Morling	J. made the
following conrent orders:

"1.	The Bankrupt, until further order of the
Court, not be discharged from Bankruptcy by
virtue of Section 149 of the Bankruptcy Act 1966.

2.     Subject to further order of the Court, the Law Society of New South Wales be granted leave to

enter an objection to the discharge of the

Bankrupt by force of Section 149 of the
Bankruptcy Act 1966.

3.    Subject to further order of the Court, the period at the expiration of which the objection entered by the Law Society of New

South Wales will lapse be a period of ten (10)

years commencing on the date of the Bankruptcy

(namely 1st February 1981).

4.    Subject to further order of the Court, the period at the expiration of which the objection entered by the Official Receiver on behalf of the Official Trustee in Bankruptcy on 30th June 1980 will lapse be a period of

ten (10) years commencing on the date of the

bankruptcy (namely 1st February 1981).

5 .     The Law Society of New South Wales, the Bankrupt and the Official Receiver have liberty to apply.

6. Questions of the costs of the Application be

reserved.

l .	The Law Society of New South Wales have leave
to file in Court the Notice of Objection to

Discharge."

Mr Adler made no contribution to his estate until

1982, when he forwarded to the Official Trustee	$200,000,
said to be an advance against commission likely to	be earned

by him from his employment as a property consultant with
Industrial Equity Limited. That contribution was made at

about the time Mr Adler came up for sentence in the District

Court of New South Wales, as I shall later mention. On 12

April 1988, Mr Adler made application to annul his bankruptcy pursuant to s.l54(l)(b) of the Act. That application was dismissed on 24 May 1988 on the ground that

the conditions of r.l54(l)(b) had not been complied with.

Subsequently, on 24 August 1988,	Mr Adler forwarded to the
Official Trustee $150,283, which he	had borrowed from a
business associate, Mr Frank Theeman.	This sum was
sufficient to pay out the creditors	and the costs and
remuneration arising from the administration of the	estate.

It was thus the postponement of the discharge of

the bankruptcy, first by virtue of the objection lodged	by
the Official Trustee and subsequently	by order of the Court,

which prompted Hr Adler to find the means to pay out his

creditors.

secondly, as the payment to the creditors was made

many years after the date of the bankruptcy, without interest and without allowance for inflation, payment in full was made only in a formal sense.

Thirdly, Mr Adler does not appear to have worked

assiduously with the Official Trustee to achieve a proper

resolution of his affairs. His first statement of affairs
disclosed unsecured liabilities of $33,688.42	and assets of
$56,606.	The proved liabilities amounted in fact to
$324,149.	Nothing was realised from assets. The Official
Trustee was unable to recover any sums from clients	of Hr

Adler's legal practice. The cashbook had not been written

up after February 1975 and there was no record of dealings

. ' 7 .

with debtor6 of the practice.

Indeed, the evidence does not ratisfy me that Mr

Adler has been entirely forthcoming to the Official Receiver

with CGBpeCt to his financial position. For example, the

Official Receiver, in his report, referred to M r Adler's taxable income for each of the years 1979, 1980, 1981 and 1982, in respect of each of which the taxable income varied from $3,882. to $4,150. Yet, Mr Adler's affidavit includes

this information with respect to this period, when	he was a
director of Adnom Pty	Limited:-

" a. During the period in which I was director

of Adnom Pty Limited, to the best of my

recollection, that company did not trade and existed merely for the purposes of being the intended recipient of any

commission to be paid by the Dainford Group. During that period the amount of commission received by that company on my

behalf was in the order of $50,000.00."

In the 6ame vein, Rr Adler's contribution of $200,000 was

said to be paid out of commission "likely to be	earned".
And a letter from Mr Adler's	solicitors to the Official

Receiver, dated 22 February 1988, includes this unusual

information:-

"5. Our client does not have any present
weekly earning and has no other source of
income.

...

7. At present a weekly rental of $1,000.00

is paid for our client's residence. This payment is made by way of an advance to our client on account of anticipated

distribution o f profits by his employer.

Our client also receives an advance	for
his living expenses."

These matters suggest that	Hr Adler may have had
greater earnings or a greater potential	for earning

than was disclosed to the Official Receiver.

Fourthly, some of Mr Adler's debts resulted from

deficiencies in the trust account of Hr Adler's legal

practice. The Law Society of New South Wales proved in the

bankruptcy for $244,864.	Mr Adler was struck off the roll
of solicitors and, on 17 March 1982, was convicted	in the

District Court of New South Wales on four charges of fraud arising out of these trust deficiencies. A case of such

nature, involving moral turpitude, is not to be looked on in

the same light as one where the debts arose from mere

financial misfortune or bad judgment.

Fifthly, Hr Adler has, as a bankrupt, committed

offences under 6.221 of the Companies Code in that, while

bankrupt, he was a director of Adnom Pty Limited from 30

June 1978 to 29 June 1981, of Plantara Pty Limited from	8
January 1982 to	5 February 1982, of Quzaan Pty Limited from
4 April 1973 to 16 September 1980 and of Rodney David Pty
Limited from 16 November 1981 to 5 February 1982.	With
respect to these events,	Mr Adler has deposed that Adnom Pty

Limited and Quzaan Pty Limited did not trade and that, in the other two companies, he acted simply as an alternate

while Hr John Austin was not available to	be a director.
Nevertheless, offences were committed.

. 9.

Sixthly, Mr Adler has been charged with 193

offences under 56.113, 118A, 178BA, 17888 and 252 of the

Crimes Act 1900 (NSW) and under ss.554(l)(b)(i), (2)(c)(i)

and (Z)(d) of the Companies Code. These charges arise out

of the liquidation of Adnom Pty Limited. MK Adler has also

been charged with common law conspiracy in relation to the

liquidation of Plantara Pty Limited.	Mr Adler has pleaded
not guilty to all charges. In his report made	for the

purposes of this motion, the Official Receiver did not refer

to these charges, considering them to be	irrelevant. Of
course, they have not been proved and cannot	be taken as
indicative of guilt.	Nevertheless, in an application for
the annulment of a bankruptcy, the honesty, probity	and
financial responsibility of the bankrupt is a matter to	be
taken into account. These charges raise a question	in this
regard.

On the other hand, an important factor favouring an annulment is that Mr Adler has	paid his creditors in full, a
very substantial amount.

Moreover, his Honour Judge Ford in the District

i Court deferred sentence upon Mr Adler in respect of the four

charges I have mentioned, upon Mr Adler's entering into a

recognisance in the sum of $100 to be of good behaviour f o r

a period of twelve months and to appear to receive sentence

if called upon to do	so at any time in respect of any breach
within that period.	His Honour referred to the four
offences and said:-

. 10 #

"... as a rerult you lost your practice, house,	arrets and was struck off the rolls and in the
m a l l communit in which you and your parents were
such proud mem ers, you were embarrassed and
dirgraced. Against that background you have lived
for a further eight years in the same city and
today persons occupying high positions, including the Chief Minister of the Central Synagogue and others of high standing come here to this Court and
rpeak well of you. You have in that time, as I say
in a most dramatic way proved that you are sorry for what happened and that you want to rehabilitate
yourself. That is, by the repayment of the whole
of the indebtedness which amounts to some
$250,000.00 to $260,000.00. I am reminded by your
Counsel that the repayment is not derived in any
way from advances or loans made to you, but is able
to be made because of your subsequent creditors. The fact is that that amount represents the whole of your indebtedness to any creditor and not merely the discharge of your obligations relating to the charges which are the subject of criminal proceedings."

I am influenced by his Honour's very favourable view of	Mr
Adler.

To annul a bankruptcy is to expunge the bankruptcy,

to set it at nought. As I have said, it is proper to do

this when the administration of the bankrupt's estate or the

bankrupt's efforts has resulted in payment in full of the

creditors and there is no cogent reason why the bankrupt

should not be fully rehabilitated in the commercial

community. However, there is the nature of the debts to be

taken into account. Many of Mr Adler's	debts resulted from
fraud and from trust deficiencies. And,	I am not satisfied

that Mr Adler has done all that was reasonably open to him

to do to assist the Official Receiver in the administration

of the estate or that he is a person who ought to have the
stigma of past bankruptcy removed from his reputation.

.

.' 11.

Moreover, the payment in full of the creditors was made	a
very long time after the date	of the bankruptcy and only

when the discharge had been postponed with a view to

ensuring that better steps were taken	in the interests of
creditors.

In the light of these matters, it seems to me that

it would be inappropriate to annul the bankruptcy.
Certainly, Mr Adler should receive some benefit from the
arrangements he has made to pay off the debts of his estate
and the remuneration and expenses of the Official Trustee,

in all $350,283. On the facts presently before me, I think

that that step would be appropriately recognised	by the
grant of an order of discharge after	so many years.

However, the present application is not for discharge but merely for annulment. In my view, an order of annulment

ought not to be made.

The motion will therefore be dismissed.

I certify that this and the 1 0

preceding pages are a true copy of the
Reasons for Judgment herein of

the Eonourable Mr Justice Davies.

Associate: &AB& Date : r 1988

Counsel for b d bankrupt: Mr D.P.F. Officer Q . C .

with Mr S.G. Finch

Solicitors for the bankrupt:	A.G. Robinson & Associates
Official Receiver on behalf

of the Official Trustee: Hr D.J.N. Bluett

of Date hearing: 4 October 1988