bankrupt's wife - bankrupt unable to earn income in any other
employment.
S. 131 Bankruptcy Act 1966
No W442 of 1986
Ryan J 6 June 1988
Sydney
IN THE FEDERAL COURT
OF AUSTRALIA )
1
GENERAL DIVISION
i
1
No W442 of 1986
BANKRUPTCY DISTRICT OF THE STATE
)
OF NEW SOUTH
WALES
AND
THE
)
AUSTRALIAN
CAPITAL
TERRITORY
1
-
RE :
GERALD MARCUS JAFFEE
(Bankrupt)
EX PARTE: MAXWELL WILLIAM PRENTICE
as Trustee of the pioperty of GERALD MARCUS
JAFFEE Bankrupt
Coram:
Ryan J
Date :
6 June 1988
Place: Sydney
MINUTES OF ORDER
The Court Orders:
That the application be dismissed.
-
NOTE: Settlement and entry
of orders is dealt with
by
Bankruptcy Rule 124.
IN THE FEDERAL COURT
OF AUSTRALIA )
)
GENERAL DIVISION
No W442 of 1986
BANKRUPTCY DISTRICT OF THE STATE
)
OF NEW SOUTH WALES
AND THE
AUSTRALIAN CAPITAL TERRITORY
-
RE :
GERALD HARCUS JAFFEE
(Bankrupt)
EX PARTE: HAXWELL WILLIAM PRENTICE
as Trustee of the property of GERALD HARCUS
JAFFEE Bankrupt
(Applicant)
Coram:
Ryan J
-
Date:
6 June 1988
Place: Sydney
EX TEMPORE REASONS
FOR JUDGMENT
By
an
application
dated
22
December
1987,
the
applicant, who
is the trustee of the bankrupt estate
of
Gerald Harcus Jaffee, has sought the following
orders:-
“l.
That the net salary of Gerald Marcus Jaffee
be
paid by his employer, Gayridge Investments Pty Limited [’Gayridge‘], directly to the trustee for the benefit of his creditors pursuant to Section 131 of the Bankruptcy Act, 1966 [‘the Act’].
2. Alternatively, that such part of the salary of
Gerald Marcus Jaffee as the Court thinks fit
be
paid
by his employer, Gayridge, directly to the
trustee for the benefit of his creditors, pursuant
to section 131 of the
Act."
The application, as appears on its face, is made under
s.131(2) of the Act which
provides:-
"The Court
may,
upon
the
application
of
the
trustee, order that all, or such part as the
Court thinks fit, of the income of the bankrupt
shall be paid to the trustee
for the benefit of
the bankrupt's creditors."
In the course of
a public examination under
6.81 of the
Act between 1 July and 3 July 1987, it was revealed that the
bankrupt,
Hr
Jaffee, was employed as the manager of the
company, Gayridge, at a net salary of approximately $1700
a
month. It
was further revealed that
M r Jaffee's wife had
independent means from which she defrayed her own living
expenses, the expenses of maintaining the joint domestic
establishment of herself and Mr Jaffee and
most
of
Mr
Jaffee's personal living expenses.
It was further indicted that
W r Jaffee's
salary was
applied by him to other expenses, such as the purchase
of
books, magazines, minor articles of clothing, train tickets and occasional drinks and meals, and to payment of medical fees.
In an affidavit sworn on 31 March 1988,
Mr Jaffee has
deposed that he has acted on medical advice from
Dr Glazer of
Rose Bay about the consequences of a haemorrhaged duodenal ulcer for which e underwent surgery in the USA on 4 November
1986. The effect of that advice, as confirmed by the oral
evidence of Dr Glazer, was that Mr Jaffee should drastically
reduce his workload, take regular short walks and avoid
stress as much
as possible.
RC Jaffee has sworn that in reliance on that advice he
has reduced his workload by now acting only as
a consultant
to Gayridge, in which capacity he
is occupied for no more
than four hours
a day on no more than three days
a week.
M r
Jaffee has further deposed, and the records of Gayridge
confirm, that since the end of February this year,
he has
been remunerated in his capacity as
a consultant at the rate
of $15 an hour and has been in receipt
of a gross income of
$180
a
week, which leaves him, after deduction of tax
instalments, with a net amount of
$156.50 a week. The
decision to reduce Mr
Jaffee's salary was taken at
a meeting
of the directors of Gayridge attended
by M r Jaffee's wife and
M i s s Cantrell, the secretary of Gayridge. M r Jaffee's
recollection is that he was in attendance for part of the
time. It
does
not
appear
that
he protested
that
the
reduction in salary was unfair or sought
in
any way to
dissuade Gayridge from reducing his salary
in the way
it did.
However, a bankrupt
may
either,
before
or
after
his
bankruptcy, make any bargain which
he pleases with any person
as to the remuneration which he is to receive for personal
services; See Re Shine. Ex parte
Shine. [l8921 1 Q.B.
522
where Fry L.J. observed at 531:-
"I
regard the words of the section and of the
order as referring to actual receipt.
They do
not refer
to title. They refer to the actual
receipt of the money. I do not say that, if there were a colourable or sham arrangement, by which a man was made to appear not to be in
receipt of a sum of which he was still actually
in receipt, the Court would not see through
it.
But the question
is, Is the man really
and
actually in receipt of that sum?"
After dealing with the facts of the case then before
the Court, his Lordship continued
at the foot of page 531:-
"This section does not enable
the Court to require
a bankrupt to receive anything. It only gives
a
discretionary power to the
Court when the man is
in actual receipt of a sum of money.
The Court
can neither restrain
a
bankrupt from entering
into a
valid agreement about his salary, nor
compel him to earn his salary, nor prevent his
forfeiting it.
He is a free man in respect of
all these things. The section only applies when he is actually in receipt of a salary or income."
His significantly reduced income has been applied by
Mr
Jaffee in defraying incidental expenses similar in kind to those to which he referred in his public examination. Those
items of expenditure have recently included $45 for an
"Ayurvedic Massage" which Hr Jaffee undergoes about once a week and which he claims affords some relief from his
physical ailments.
If it were relevant, there
is no evidence from which
I
can infer that the salary of
$180 a week paid to Mr Jaffee by
Gayridge is less than the present value of his services as a
consultant to that company. Indeed, the inference
is
open
that notwithstanding his expertise in matters related to
breeding and racing of thoroughbred horses, which Mr Jaffee
has assiduously maintained, the bankrupt, who is now aged
69
years and in indifferent health, could not obtain income from
anybody other than Gayridge.
There is authority for the proposition that a wife's
financial position
is relevant to an application under
6.131
in respect of her bankrupt husband. See, for example, -
Re
Saunders. Ex parte Saunders. 118951 2
Q.B. 424 at 426. In -
Re
Saunders, the Court of Appeal was at pains to emphasize that
the discretion under the counterpart of 6.131
is a general
one to
be exercised on the facts of each case and not subject
to any binding rule of
law.
In the present case, the wife is
not dependent to any extent at all on her
husband's income,
but, in fact, contributes significantly from her own income
to
his aupport. Those
circumstances
raise
the
question
whether the whole or any part of the
bankrupt's
present
income is reasonably
necessary for the
support
of
the
bankrupt himself.
The principles to
be applied in answering that question
were distilled from the authorities by Riley
J.
in
the
following passage from Re McLachlan (1975) 8 ALR 162 at 165 where his Honour said:-
permits someone to approach the court for an order against another, common sense and logic
dictate that it is for the applicant to satisfy
the court that an order should
be made."
I am not prepared to infer from the evidence before the
Court that Mrs Jaffee would necessarily contribute to her
d
husband's
living expenses some further amount equal to
so
much of his present income as
he might be ordered under 6.131
to pay to the trustee. It is tempting to speculate that Mrs Jaffee controls Gayridge and that the present salary allowed to her husband is merely an allowance in another form to her
husband by way of pocket-money with some incidental taxation
advantages to Gayridge, and through
it
to Mrs Jaffee. The
evidence does not permit the Court to form firm conclusions
about those matters but, if the speculation be correct, the
consequence of an order under s.131
would probably be that
Gayridge would cease to pay any salary at all to
M r Jaffee
who would then be entirely and directly dependent upon his
wife for his living expenses.
However, on
the
evidence
before
the
Court,
it is
sufficient to indicate that
Mr Jaffee has discharged the onus
in an evidentiary sense of showing the whole of his present
net income of
$156.50 a week is reasonably necessary to meet
such of his living expenses as, in the present circumstances,
are not defrayed directly by his
wife.
Against that, the
trustee has not persuaded me that the likelihood that
Mr
Jaffee's wife would meet all those expenses if his net income
were wholly or partly diverted by an order under s.131(2)
renders it an appropriate exercise of the
Court's discretion
to make such an order. I should say that this case turns on
its own extraordinary facts, which include the circumstances
that at all relevant times the
bankrupt's
sole income has
been derived from
a company controlled
by his wife
and he has
had no capacity to earn income from any independent source.
For these reasons the application is
refused.
I certify that this and the preceding
seven (7) pages are a true copy of the Reasons for Judgment herein of his Honour Mr Justice Ryan.
Associate
A?cr--%.b
Details
AGLC
Jaffee, Re G.M. Prentice, Ex parte M. W. [1988] FCA 315
Case
[1988] FCA 315
Decision Date
CaseChat Overview and Summary
In the Federal Court of Australia, Maxwell William Prentice, the trustee of the bankrupt estate of Gerald Marcus Jaffee, applied for an order that Jaffee's income be paid directly to the trustee for the benefit of Jaffee's creditors. The application was made under section 131(2) of the Bankruptcy Act 1966, which allows the court to order that all or part of the bankrupt's income be paid to the trustee. Jaffee's income, derived from his employment with Gayridge Investments Pty Limited, a company controlled by his wife, was approximately $1700 a month. However, since a medical condition required him to reduce his workload, his income was reduced to $180 a week.
The primary legal issue the court had to decide was whether the court should exercise its discretion to order that all or part of Jaffee's income be paid to the trustee. The court considered various factors, including the bankrupt's capacity to earn income from any independent source, the bankrupt's need for the income to meet his living expenses, and the financial position of Jaffee's wife. The court found that Jaffee's wife was not dependent on his income, and that Jaffee had no capacity to earn income from any independent source. The court held that the bankrupt's present income was reasonably necessary for his support, and that the trustee had not established that it was appropriate to exercise the court's discretion to make an order. The application was dismissed.
The court's reasoning was based on the principle that a bankrupt is not to be deprived of income reasonably necessary for the maintenance of himself and his family. The court found that Jaffee had discharged the onus of showing that his present net income was reasonably necessary to meet his living expenses. The court also found that the trustee had not established that it was appropriate to exercise the court's discretion to make an order, as there was no evidence to suggest that Jaffee's wife would meet all his expenses if his net income were wholly or partly diverted by an order under section 131(2). The court emphasised that the case turned on its own extraordinary facts, including the circumstances that Jaffee's sole income was derived from a company controlled by his wife, and he had no capacity to earn income from any independent source.