Donald Brookes Lockyer, ex parte: Donald Brookes Lockyer v Official Trustee in Bankruptcy

No. 673 of 1984

A Bankrupt

Appllcant

and

p -ORE

REBspNS FOR JUDGMENT

The bankrupt became

bankrupt on 4 September 1984,

on tho filing of hi8 own petition under r.55 of the -tcv Act 1966. At that time, he wan an undischarged bankrupt p u r n w t to a bankruptcy order made in Queensland in 1976 ('tha Quoonsland bankruptcy'). Previously, he had been bankrupt in New South h 1 0 8 in 1962, but he was discharged

from that bankruptcy in 1974 and there had been a

dividend of

100 cont.	i n tho dollar paid on proved debts in that first
bankruptcy.

2 .

I '

By application dated 7 December 1987, the bankrupt

has applied, pursuant to 5.150 of the Bankruotcv Act, for an

order of discharge.

Section

149 of the

did

not provide for the automatic discharge

of the bankrupt after

the expiration of three years from the bankruptcy of 4 September 1984, becaume at that tzme, namely 4 September 1987, he was an undischarged bankrupt from an earlzer bankruptcy - see sub-sections 149(1) and 149(3)(a). Because of the operation of thrt paragraph, in the present case no objection to the automatic discharge was lodged pursuant to paragraph 149(3)(c).

About

same time am the applicatzon for

discharge of the bankruptcy of 4 September 1984, the bankrupt applied for the discharge of the Queensland bankruptcy whzch had commenced in 1976. The application in relation to the

Victorian bankruptcy came on for hearing before

the hearlng

of the Queensland application, and

the Victorian hearzng was

adjourned to enable the Queensland hearing to proceed

since

it was dealing with the

first of the eristlng bankruptcies.

On 24 March 1988,

the Federal Court of

Australia,

constituted by Pincum 3. made an order for discharge from the

Queensland bankruptcy. It

uas an unconditional dlscharge.

And

so,

for prement purposes, the Court

i m

faced wzth the

position that

there is in existence one bankruptcy only,

namely the bankruptcy which flowed from the filing	of	the
debtor's pmtition on 4 September 1984.

3 .

Under sub-section 150(1), a person

who

1s a

bankrupt may apply to the Court for an order of discharge at any tlme after (a) his public eramlnatlon has been concluded - in the prcaent Case that has not been concluded or ( C ) the expiration of the period of 12 months commencing on the date of the bankruptcy. That 18 established here, and that 1s the ground upon which the application for discharge is based. Under sub-section 150(3), on the hearlng of an appllcation,

the Court shall take into consideratlon a report in wrltlng

by the

Trustee concerning the

bankrupt, hls conduct, trade

dealings, property and affairs, both In respect of the perlod

before and the perlod after the applicant became a bankrupt,

and under sub-section 150(12), such a report is, for the

purposes of s.150, prima facie evidence of the statements

contalnsd In it.

In addition, under sub-sectlon 1 5 0 ( 4 )

the

Court may hear further

evldence relevant to the matter, and

in the preaent case the bankrupt has given evldence to the Court. Sub-section 150(5) provider that the Court shall, 1f any of the matters specified in sub-section ( 6 ) 1s established, (a) refuse to make an order of discharge, or (b) make m order of discharge but suspend the operation of the

order as the Court thinks proper, either unconditionally or

subject to conditions.

Sub-scctxon ( 6 ) sets out the

matters

upon the eatrblisbent of which the Court may exercise a

power specified in sub-section (51, and in the present case.

the Trustee is relying upon paragraph (i) namely that "the

bankrupt h 8

been convicted of an offence against this Act

. . .. . or of m y other offence related to his bankruptcy".

That paragraph is of inportanco in view of the facts which I

4 .

.hall refer to ahortly. Sub-section 150(9) provides:

"Where none of the matters specified in sub-section

( 6 ) is eatablinhed, the Court may--

(a) rcfune to m k e an order of dlscharge;

(h) make an order of dascharge; or

(c)	make an order of discharge but suspend

the operation of the order as the Court thanks proper, either unconditionally or sublect to condltions."

The effect of sub-section ( 5 ) and sub-sectron (9) can be summarised but before 1 do that I read sub-section (10):

"The Court shall

not, under

sub-section

( 9 1 ,

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 came, if the Court finds the eatabliahment of paragraph (1) of sub-section ( 6 ) , it has

pouur to suapend the operation of any order made, if it makes

such m order, but under sub-section ( 9 ) if the establishment of th&t ground ia not made, then it cannot on the facts of thia c&se, auapend the operation of the order because a period of three yearn has already expired from the date of the bankruptcy. Sub-aection ( 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 m&ttera dealing with the three bankruptciea of the bankrupt. In thm firat bankruptcy, the creditor. who proved

5 .

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 ah0St nothing pald. 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 rar 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 pap all the debts in full. There was a public examination held in April 1987 and adjourned to a date to be fixed. The bankrupt is aged 58 years. He was married but 1s now divorced. At the time of his bankruptcy in September 1984 he -a employed part-time as an accountant receiving approximately $150 gross per week. It appears that the

bankrupt attracted the attention

of the Royal Commission lnto

the Federated Ships Painters w d Dockera Union, and subsequently pleaded guilty to charges of conspiring to defraud the Conmonwealth pursuant to the provisions of the

m 1914 (Cth). In August 1986 he was imprisoned for

that offence. The t u avoidanco actavitaer upon which the criminal proceedingo were based are claimed by the bankrupt

aa being, in his opinion, quite lawful at the time, but

nevertheless any monies he received from those activitles apparently ware invested in various forms of real estate and other property, and it is from these that there may be

furthmr monies coming into the

estate.

6 .

The bankrupt attributes his bankruptcy to claims by

the Taxation Department, and

in the opinlon of the Offlclal

Truatee, the major flctor contributing to the bankruptcy was the bankrupt's promotion of tax avoldance schemes. The

Official TrUat.8

atat8a 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 alao states that he does not allege that the bankrupt has committed any offences against the provlslons of

the Act.

The adverse matterr referred to are set out In

paragraph 12 of th8 report of 3 March 1988, and added to by a supplemmntary report dated 15 March 1988. These adverse matters relat8 to convlctrons of the bankrupt arislng from conduct during his Queenaland bankruptcy, but before the

Victorian bankruptcy, being 22 charges of leaving Australla without tho written consmt of the trustee, and five charges of failing to hand over his paasport. It is also alleged that h8 tma convicted of an offence relating to his current bankruptcy nmaly conspiring to defraud the Commonwealth of revenue, m d I will comm back to that matter later, because

this reli.8

vary much on the

construction to be put upon

paragraph 1 5 0 ( 6 ) (i) of the mkruDtcv Act.

The other

offences r8forr.d to ar8 in the supplementary report which relate to d8tails of convictions under paragraph 269(a) of

tho -

namely obtaining credit to the extent of

Q5QQ or

m ~ r 8

from a person, without informing that person

t h t ho VIS

an undi8chrrg.d

bankrupt.

Thoa8 offences

apparantly wra all conitt8d bofor8 4 S8ptmmb8r 1984,

being

the date of the current bankruptcy. One offence against paragraph 265(l)(a) of the &mkrUDtCv Act is recorded but again, thia occurred before 4 September 1984. Eight offences under other statutes are recorded but agaln all occurring before 4 September 1984.

The Officral Trurtee opposes the application on the ground. uhich are set out. It is

claimed that the bankrupt

tma not given cogmnt ground8 for seeking a discharge from bankruptcy and reliance i6 had on Be Mahsc (1985) 7 F.C.R. 240 and an unrmported dmciaion of the Federal Court

constituted by French J in Re h m o , judgment in whlch was given on 12 February 1987. The Official Trurtee 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 rt is necessary to decide

whether s.150(6)(i) h a

been established in this case:

That paragraph read6 as follou6:-

"The matters upon

the establishment of which the

Court may axercise the

powers

specified

sub-section ( 5 ) are as follow=:--

(a) .......

(i) that the bankrupt haa been convicted of an offence against thia Act or the repealed Act or of any other offence related to hia

bankruptcy.

On ita faca, t h t paragraph appliaa to offences

which have been committed during

the period of the bankruptcy

._ from uhich a bankrupt is seeking to be discharged. In the presont case there is no claim made that the bankrupt has Committed or boon convicted of an offence in relation to has conduct during the period of his third bankruptcy commencing in Soptenber 1984.

Likeuise the second part of that paragraph refers to any othor offonco related to his bankruptcy.

On its face,

this refers to the bankruptcy uhich is the sub~ect

of the

application for dischage.

It vas argued that the

conviction for the

conspxracy 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 h

bocamo a bankrupt in September 1984

and it cannot bo

said that thoso offences related to a

subsoquont bankruptcy.

Tho uord "rolatad" muat be given vide

meaning but on any viou, in my opinion, it cannot refer back to and include conduct uhich occurred before the bankrupt became bankrupt.

It may vel1 b

and I oxpress no vleu on this, that

in the application for discharge in relation to the Queensland bankruptcy, the convictions referred to in the Official Trustoo's roport may wll have been offences o r convictions vithin paragraph (i) and should have been taken

into 8ccount by that Court.

I am bound by the order made

that tho

bankrupt

be dischargod from his Queensland

bankruptcy.

Accordingly on this construction

af paragraph (l),

and 1 can see no other valid constructlon, the Officlal Trustee has not established any matter within paragraph 150(6).

Accordingly, the power which I must exercise 1s not that confmrred by sub-section ( 5 ) but by sub-section ( 9 ) of s.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 care it cannot suspend the operation of the

order and cannot make it a conditional or unconditlonal suspension because the three year perlod referred to in sub-section (10) hrs already expired.

The applicant is now 58 years old. He has been an undischarged bankrupt r i m e 1976 and an undischarged bankrupt under his latost bankruptcy since September 1984. He proposer to engage in activities of producing a financial

newsletter based upon information received from publlc companies, collating that information and putting it in a form which can be underrtood by subscribers to the newslettmr.

The basis for granting

discharges

have

been

discursed in

a number of cases. It

is discussed at some

length by Smithmm J. in the case of R.,

unreported,

Septerber 1986.

Thm whole purpose of bankruptcy is to enable

the trUlf.0

to obtain the asset. 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 -re, a d to commence again. This ic recognised by the amendments to the -untrv Act from time to time whlch provide for the automatic discharge after a period of pears uhich is now three yeara, having been reduced from a longer period, in the normal course of events. It 1s extended to five year. in certain circunatancss. In the present case the bankruptcy was extended beyond the three yeara because of the existence of the Queenaland bankruptcy. At the 6ame time the public interest requires a discharge to be delayed or

mad0 conditional if the character of the bankrupt, and I

quote from Smithera J. in Re Zion, ' I . . . . indicates that the return of the bankrupt to the commercial world in full freedor might involve unacceptable risks to persons llkely to be engaged in commercial relations with him in the future."

In other cards, 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 dangera that night accrue to the public from full commercial activlty of the applicant, it is appropriate that the discharge be granted. It ahould be noted that Mr Zion did get hls

discharge

from bankruptcy. In Re

(1985) 7 F.C.R. 240,

Woodward J. aaid at p.246:

'An application for discharge from bankruptcy

ia m e r treatocl lightly by the Court. As

wlth tha granting of a soquestration order, an

application for diacharpe involves looking beyond the intereats of thm applicant and his

or her creditor. to conaidering both

the

AA.

interests of the Public

and

commercial

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 t u

avoidance schemes.

He has paid the

penalty for engaging in those activitles by

being imprisoned for tha offence of conspiring to defraud the

Commonwealth.

He has also bean made liable to

pay large sums

of taxation monies to the Commissioner

of Taxation. Apart

from those

activitios,

there

is no suggestion that the

bankrupt has engaged in

a series of commercial transactions

by which a large number of people have been deprlved

assets, and in

this regard the facts of this case are very

different from the facts

WQ,

above. On the face of

the facts of

8. M&=,

thore 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

f&cts established.

In the present case I have already

indicated that the real problem here was the action by the bankrupt in eng&ging in t u avoidance schemes, and he has paid tha ponalty for so doing. Society has punished him. He

has been a bankrupt now for something over three years. Under normal circummtances he would have got an automatic dimchargm at the end of three yearr, but for the Queensland

bankruptcy. That bankruptcy has been discbargod. It is

possible that moan now, if the bankruptcy I8 not discharged,

thm Official Tru8t.o could lodge an objoction under ..l49 of

thm Act, but it is clear that s.149 of itself no longer

12.

oprraten becau88 at the tirm it uuuld have come into operation therm uas no automatic di8charge because of the Queennland bankruptcy. It is important that a bankruptcy should not b.continued unnecemmarily, and I see no reason why, upon the fact8 of thi8 case, an order for discharge 8hould not be Mde. Accordingly I propore to grant the application and to make an order of discharge.

[1988] FCA 251

13 Apr 1988