Ex parte

[1991] FCA 509

Re: BARRIE ANDREW KNIGHT
Ex parte: BARRIE ANDREW KNIGHT
No. WB307 of 1988
FED No. 509
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
GENERAL DIVISION
French J.(1)

CATCHWORDS

Bankruptcy - application for discharge - substantial deficiency - deficiency unexplained - need for positive co-operation with trustee - insufficient to refer to explanation of deficiency given at criminal trial - convictions for offences involving dishonesty - relevance of public interest and commercial morality - application refused.

Bankruptcy Act 1966 s.149, s.150

HEARING

PERTH

#DATE 14:8:1991

Mr B.A. Knight appeared on his own behalf.

Counsel for the Trustee : Mr L.D. Ayres

Solicitors for the Trustee : Robinson Cox

ORDER

The application is dismissed.

Note: Settlement and entry of Orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is an application for discharge from bankruptcy by Barrie Andrew Knight. Mr Knight became bankrupt on 29 April 1988. In the ordinary course he would have become entitled to a statutory discharge on 29 April 1991. However, on 10 January 1991 his trustee in bankruptcy lodged a notice of objection to discharge on the following grounds:

"That the conduct of the Bankrupt in the period before

the date of the bankruptcy was unsatisfactory in that he:-

(a) brought on or contributed to his Bankruptcy by dishonestly using funds deposited by investors with him as agent for Swan Building Society for his own purposes; and

(b) was unable to and made no attempt to make restitution to Swan Building Society, his major creditor, for moneys owed by him to Swan Building Society as a consequence of his dishonesty."

The particulars of the criminal charges brought against Mr Knight and relied upon in paragraph (a) of the grounds of objection were set out in a schedule to the notice.

1. In summary it indicates that Mr Knight was convicted of some 59 counts, largely of stealing, but including counts of forgery and uttering, and was sentenced to a term of 7 years imprisonment with a minimum period before eligibility for parole of 2 years and 2 months. The sentence was imposed in December 1989. Mr Knight is eligible for release on parole in May of next year. Because of the lodgment of the objection he is disentitled to a statutory discharge under s.149 of the Bankruptcy Act 1966 and so brings his application under s.150 of the Act.

2. In accordance with the requirements of the Act, the trustee filed a report on 1 July 1991. He says in the report that when Mr Knight became a bankrupt on 29 April 1988 he lodged with him a statement of affairs which indicated assets of about $14,000 which with interests in property, the subject of certain securities, reflected a total asset position of $74,025, with liabilities to 6 unsecured creditors of $21,047, an unknown contingent creditor in the form of the Swan Building Society, and secured creditors totalling $355,000. This was said to demonstrate a claimed surplus of $52,978 subject to the position with the Swan Building Society. In the event, 3 creditors have lodged proofs of debt which have been admitted in a sum amounting to $1,194,950. One of those proofs of debt is for $1,175,253 owed to the Swan Building Society. In reporting on the position of the estate generally, the trustee informs the Court that on 5 May 1988 he advised creditors by circular that it was not his intention to apply to the Registrar for the holding of a public examination, and if they knew of any reason why the bankrupt should be publicly examined, they should advise him in writing as soon as possible. No such requests were received. I take it from that, that the Swan Building Society, in particular, had no interest in pursuing a public examination.

3. According to the trustee, on 19 May 1988 at a meeting of creditors, the bankrupt was asked to explain his financial position and whether there had been any dispositions of property. But no explanation was offered and none, he says, has been made since. The trustee identifies as a matter of principal concern the apparent lack of assets to account for any of the $1,175,253 owed to the Swan Building Society. The estimated funds available for creditors after receipts, payments to secured creditors and other payments, plus provisions for costs to complete the administration, is $3,421.82. In terms of dividend prospects the trustee reports that having received 1.9 cents in the dollar on 1 May 1990, creditors can expect to receive a second and final dividend of less than 0.3 cents, representing a total of 2.2 cents in the dollar. He repeats in the report the grounds for objection to the discharge of the bankrupt, refers to the various criminal charges and summarises the position in the following way:
   

"The Trustee had admitted a Proof of Debt in the sum of $1,175,253 for Swan Building Society. The Bankrupt has not accounted to the satisfaction of the Trustee for the substantial deficiency of assets despite the large sum misappropriated from Swan Building Society. The dissipation or whereabouts of the Swan Building Society funds therefore remains largely unexplained. No further information has been given to the Trustee during the course of the bankruptcy to detail how

these moneys were dealt with by the Bankrupt and the Bankrupt has been unco-operative in this regard."

Mr Knight has filed an affidavit and has also given supplementary oral evidence in support of his application. He says that in August 1987 certain allegations were made by trustees of the Swan Building Society for whom apparently he worked as an agent, that he had, without authority, used funds of the Society to purchase land and other assets in his own name and in the name of two companies which he controlled. He said that upon those allegations being made he went to the head office and attended upon officers of the Society and presented them with a list of his assets with appropriate legal documentation so that, in the event it could be shown he had obtained them dishonestly, they could be dealt with without further impediment but on the understanding that the assets would be returned to him if subsequently it were found that he had acted honestly. He says that the total net value of those assets was about $544,000. They included a roadhouse, a restaurant, 2 mortgages, a unit in Palmyra, some shares and 3 motor vehicles. He complains, however, that due to the intervention of an officer of the Corporate Affairs Commission in the disposition of the assets, the restaurant was sold for an under-value, thereby depriving creditors of something more than $100,000. He says there was an attempt to sell the roadhouse by the same officer for $401,000 and that having refused to sign the offer of acceptance, he sold the property himself 11 days later for $475,000.

1. Nevertheless he claims that the officer's intervention had cost his creditors a further $100,000. The other assets, he says, were realised in a proper and orderly manner at the approximate values placed on them. He claims that his actions in this regard clearly demonstrate that he made a considerable effort to protect the interests of his principal creditor, the Swan Building Society.

2. Mr Knight says that in early 1988 the trustees for the Society claimed approximately $1.3 million was owing to them by him and/or his companies. As his assets were only likely to realise about $240,000 in total he took his solicitor's advice that he wind up the companies and file his own petition for bankruptcy. He then referred in his affidavit and also in evidence to his trial on the various criminal charges in November of 1989. He says:
   

"...the consensus of opinion between prosecution and defence counsels was that I had used approximately $300,000 of Swan's money to purchase assets in my name or in the name of my companies. If the sale of the two principal assets had been allowed to proceed on the basis of the original offers, I would have easily been able to discharge my financial obligations to Swan."

1. In his oral evidence, Mr Knight says that of the money said to be due to Swan some $600,000 had been paid by way of interest to investors and $200,000 went in connection with office and other costs. $300,000 was said to have gone personally to him or for his purposes, and this, he said, was supported by an auditor's report which was produced at trial. Now, it does not appear that this analysis, the details of which I don't at the moment pretend to understand, have been explored with the trustee. He says, however, they were explored in full during 2 1/2 days of his examination and cross-examination in the District Court. And the transcripts and report have been available to his trustee should he so desire to examine them. Mr Knight concludes his affidavit by quoting from opening and closing addresses of the prosecution made to the jury during his trial which, he says, put the matter in its proper perspective. He quotes in particular a prosecution statement in opening that it would not be alleged that his activities had caused the collapse of the Swan Building Society or that he had personally pocketed all of the missing $1.2 million. It was alleged, he said, that if he had told his investors that he was pooling their money before investing it with the Society, he would not then have been in court facing the charges that he did.

2. On the question why discharge should be granted and the impediments that bankruptcy puts in his way, Mr Knight says in his affidavit that the prison authorities constantly remind prisoners under sentence that rehabilitation is of paramount importance. If he is still an undischarged bankrupt when released from prison in May 1992, the impediment of bankruptcy would make it difficult, if not impossible, for him to re-establish himself in the work-force, particularly if the current economic climate persists for another year. He says he has no wish to be a burden on society and will have paid his debt to society. He sees this attempt to extend his bankruptcy, which serves no useful purpose, as an additional punishment over and above what has already been imposed on him. And in some elaboration in his oral evidence, he indicated that there is employment available for him on his release which would involve him flying on a regular basis to and from Papua New Guinea. The necessity to obtain consents from the trustee in relation to the obtaining of credit in excess of $500 are matters which will interfere with his capacity to do this work, he says, and his prospective employer had told him that he regards the continuance of the bankruptcy as a difficulty in the way of his ability to carry out that proposed employment. He also makes the point that he will from May of next year be on parole for the balance of the 7 year term. This is assuming, and there is nothing to suggest otherwise at the moment, that he would not be released on parole at that time. He says that under the terms of his parole he would be required to notify any change of address or employment to his parole officer and cannot leave Australia without the consent of that officer. Those stringent conditions, he said, would simply be duplicated by the continuance of the bankruptcy.

3. Mr Knight contends that the trustee is essentially endeavouring to act as a policeman, that he is undergoing the punishment that society has imposed upon him in relation to the offences for which he has been convicted and that it is inappropriate to allow the provisions of the bankruptcy legislation to be used for that purpose. I accept that the object of bankruptcy is not punitive. It is in essence protective of the public interest and the interests of the bankrupt's creditors. It provides for rateable distribution of such assets as are recoverable amongst the various creditors according to their priorities. It puts in the hands of the officer appointed to administer the estate, that is to say the trustee, coercive tools of investigation and inquiry which enable the full extent of the bankrupt's estate to be ascertained. The question whether or not a discharge will benefit the administration of the estate or will have any impact on the interests of the creditors of the estate, whilst relevant is not conclusive of the question whether discharge should be granted.

4. It has been said on more than one occasion that the court in determining an application of this kind has regard not only to the interests of the creditors and the proper administration of the estate, but also to the public interest and commercial morality. It does appear that there has been as between the bankrupt and the trustee inadequate communication. It is not sufficient, I think, for a bankrupt to say in relation to the deficiencies which the trustee complains are unexplained, that it is all there in the transcript of evidence and auditor's report put before the District Court in criminal proceedings. Nor is it sufficient to say that the trustee has not made inquiry of him. It is the bankrupt's duty, if he seeks the indulgence of discharge where discharge would not otherwise be automatically available, to show that he has taken all reasonable steps to ensure that his estate is available for distribution among his creditors and that the trustee is appraised of all relevant information.

5. In this case the matter does not stop with the question of co-operation with the trustee. Mr Knight has been convicted of a large number of offences and there is a very significant deficiency in the estate to the extent that creditors are unlikely to recover, on present estimates, more than 2.2 cents in the dollar. I do not think that having regard to the considerations of public interest and commercial morality to which reference has been made, that Mr Knight has made out a case for discharge. It may be that at a later time he can bring a further application when he is able to demonstrate that he has taken the initiative of making available to the trustee all relevant information and satisfied the trustee that he has explained the deficiency of assets complained of. More importantly, he will also have to satisfy the court that it is in the public interest and in accordance with notions of commercial morality that he should be discharged prior to the lapse of the term of 5 years having regard to the history of this matter and the proven dishonesty that was associated with it. The application will therefore be dismissed.