Kalwy v Secretary, Department of Social Security

[1992] FCA 489

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION	)
BANKRUPTCY DISTRICT OF THE	1 No. QB 1830 of 1990
STATE OF OUEENSLAND	1

RE :  ALAN GRAHAM NEWITT

EX PARTE: THE ABOVENAMED

(The Applicant)

MINUTES OF ORDER

JUDGE MAKING ORDER:	SPENDER J.
DATE OF ORDER:	16 JUNE 1992
WHERE MADE:	BRISBANE
THE COURT ORDERS THAT:

1.    Alan Graham Newitt be discharged from his bankruptcy

but the operation of this order is suspended until

Alan Graham Newitt provides to his trustee the sum of .

$5,000.00.

2.    The resisting creditors' costs to be costs in Alan Graham Newitt's bankruptcy.

m:	Settlement and entry of orders is dealt with in Rule
124 of the Bankru~tcv  Rules.

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION

BANKRUPTCY DISTRICT OF THE	No. QB 1830 of 1990
STATE OF OUEENSLAND

RE :  ALAN GRAHAM NEWITT

EX PARTE: THE ABOVENAMED

(The Applicant)

-:	Spender J.
PUCE	: Brisbane
m:	16 June 1992

EX TEMPORE REASONS FOR JUDGMENT

This is a contested application for discharge by Alan Graham Newitt. It is unnecessary to be prolix in these reasons since most of the matters have been the subject of discussion in the course of submissions on behalf of the applicant and on behalf of two of his creditors, Advance Commercial Finance Limited and Australian Guarantee Corporation Limited.

Each of them opposes the application for discharge on the grounds that Mr Newitt has not shown cogent grounds for the exercise of the court's discretion in his favour, and also that it is in the interests of creditors that the applicant's application for discharge fail, or its operation be suspended on terms.

M r Newitt presented his own petition on 19 December

1990. His statement of affairs filed at that time showed total assets of $7516.00, and the liabilities were estimated in the statement of affairs at $580,000.00.

His liabilities arose as a guarantor in respect of two ventures with which he was associated: first, the operation of the Lake Hotel in Toowoomba, and secondly, the Factory nightclub in Rockhampton.

In respect of the Toowoomba operation, Advance Commercial Finance Limited is owed something in the order of $650,000.00, being the deficiency on realisation of that asset. It has to be said that at the time at which M r Newitt gave his guarantee concerning the liability of R A M Promotions Pty Ltd (the company which operated that hotel), the material - particularly the exhibit KCB3 to the affidavit of M r Keith Booker, the state manager for Queensland of Advance Commercial Finance Limited - shows that the hotel was, at about 4 April 1990, valued at 1.16 mill~on, and that the adjusted net profit was $386,635.00. The total indebtedness of RAAP Promotions Pty

material, imprudent to provide a guarantee for any shortfall by	Ltd in that document was $847,838.44. It was not, on that	RAW Promotions Pty Ltd, but in the events that have happened,
a very substantial shortfall has come about.

In respect of the Factory nightclub in Rockhampton, it

I	is plain from the report by Stephen Eleftheriou, the Official
Receiver for the Bankruptcy District in the State of Queensland,
I
that the delays in obtaining the relevant licence and the conduct
i
i
of a competitor, meant that substantial sums were directed to that venture from the hotel in Toowoomba.
After the nightclub had been trading for only a short period there was a rearrangement in the shareholding of Leftyard

m - ,

I

Pty Ltd, the company operating that nightclub. From a document L..

exhibited by Mr Newitt to his affidavit filed on 11 June, it	1
1-
appears that on 15 December 1989 the remaining shareholders in	I
!.
I I
the company, Wilfred Korte and his wife Lynette Gayle Korte, gave	I
L
an indemnity to M r Newitt in respect of all liabilities which he may incur by virtue of or pursuant to any guarantees he provided in respect of the operation of Leftyard Pty Ltd, and against all costs, damages, and expenses, which he may pay, sustain, or incur, by reason of any claims or demands made upon him pursuant to any guarantee he had given.

In this case there is a very significant disparity

between 3 l r Newltt's liabilities and his assets. This application

was made in March and was adjourned in April.	The applicant
seeks to have the application for discharge dealt with prior to	1 July 1992, when the amendments effected by the Bankruptcy
Amendment Act of 1991 come into effect.
Mr Eleftheriou reports that the information currently in his possession would support the statement by the bankrupt that his bankruptcy was caused by the delays in obtaining the licence for the Rockhampton nightclub, and the subsequent financial difficulties encountered by RAAP Promotions Pty Ltd.
The trustee does not allege any unsatisfactory conduct on the part of the bankrupt, nor is he aware of any offences against the Bankru~tcv Act 1966 ('the Act'). In particular he does not allege any adverse matters pursuant to S. 150(6) of the Act.
ELr Newitt is thirty-five years old and has no dependants. Since his bankruptcy he has worked on and off as an employed carpenter. For some part of that period, he has worked for his father, who is a registered master builder.

M r Newitt seeks his discharge, amongst other reasons,

to enable him to reapply for registration as a builder. His registration was cancelled on his bankruptcy, taking effect from 20 January 1991. The material shows that re-registration as a builder is not automatic upon his discharge. Newitt's financial capability is also relevant and an affidavit by his father suggests that he will provide sufficient financial resources to enable this aspect of the matter to be addressed.

Mr Newitt's primary reason for applying for a discharge is that the discharge would be of great assistance in obtaining registration as a builder, and his prospects for employmentwould thus increase. In particular, he hopes to form a partnership with a plasterer and engage in the building of speculative homes.

An application such as this involves looking beyond the interests of the applicant and his creditors, to considering both the interests of the public and commercial morality generally.

A decision under S. 150(9) involves the court exercising a wide and unfettered discretion. An applicant has to show some cogent ground or grounds for the exercise of the discretion in his or her favour. A mere dislike of being a bankrupt cannot be sufficient.

Apart from the increased opportunities for employment a discharge might provide, also to be considered are proposed changes to registration of builders in Queensland. It was submitted that were his discharge to be delayed for an extended period, real difficulty might be experienced in obtaining re- registration.

On the entirety of the material I am not satisfied that anything has been shown to suggest that Mr Newitt is not competent as a builder or that it would be hazardous to permit him to re-engage in the building industry as a registered builder. He has undertaken through his counsel, M r McQuade, not to engage in commercial activities other than in the building

industry until 19 December 1993.

In Re Maher (1985) 61 A.L.R. 592, Woodward J said at

598:

" 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 interests of the public and

commercial morality.. . "

Here, there is a significant deficiency in the estate and two substantial creditors oppose the application. Mr Newitt has beenmaking small but reasonablyregular contributions to his estate and his level of income suggests that were he to be still a bankrupt after the amendments introduced by the Bankru~tcv

Amendment Act, he would not be obliged to make contribution to his estate. Should his income increase that position might change.

It seems to me that the creditors are entitled to be

concerned giventhe nature of the discrepancybetween Mr Newitt's
assets and liabilities. I think it right to acknowledge that
they are not motivated by the prospect of a large contribution
being able to be made should the application be refused, but by
a desire to vindicate a perception of commercial morality which
seems to have been infringed by the applicant in his dealings
with the two creditors.

Temperingthat natural concern is the circumstance that view that the hotel was able to provide sufficient security for	at the time of the provision of the guarantee it was a considered
the borrowings. In respect of the Rockhampton venture it seems not inappropriate to recognise the relationship between the shareholders of Leftyard Pty Ltd evidenced by the indemnity dated 15 December 1989.
I do not fear that there is any real risk to the public if the applicant is permitted to embark on his proposed joint venture with a plasterer in the construction of speculative homes. I would be concerned if there was any suggestion that he intended to engage in entrepreneurial activities such as operating an hotel or a nightclub for which history shows he is not at all suited.
While I expressed in the course of argument some reservations concerning aspects of his conduct in relation to his dealings with properties at Tillbrook Street and at a delicatessen in Ferny Grove, those reservations that I have are not sufficient in my opinion to lead to a refusal for the application.

I am conscious that the Bankru~tcv Amendment Act to

come into force on 1 July 1992 provides in s . 55:

"

Any application made to the Court under section 150 of the Principal Act that did not result before the repeal of that section in the making of an order for the unconditional discharge of the bankrupt, and any order made on such an application, lapse upon the repeal of that section. "

In my view, I should provide an opportunity for the

applicant to make some contribution to his estate, but also to
meet his hopes to secure re-registration as a builder.

On the whole of the material, and the submissions that have been made to me I make an order of discharge of Alan Graham Newitt from his bankruptcy, but I suspend the operation of that order until he provides to his trustee the sum of $5000.00. It follows from S. 55 of the Bankruptcv Amendment Act that if provision in that sum is not made prior to 30 June 1992 the order of discharge made on that condition will lapse.

So far as costs are concerned, the resisting creditors' costs should be costs in M r Newitt's bankruptcy. That may be only a few cents in the dollar but it does vindicate the resisting creditors' concern about the matter, at least in a symbolic way.

I cer t i fy t h a t t h i s and t h e preceding seven ( 7 ) pages are a t r u e copy of t h e reasons for judgment here in o f t h e Honourable

M r J u s t i c e

Date:  16 J u 7 9 9 9 2 I/

Counsel f o r t h e app l i can t Mr P. ~ c ~ u a d e

i n s t r u c t e d by	Cleary &	Hoare
S o l i c i t o r s f o r	t h e opposing c r e d i t o r s :	Clayton U t z

The O f f i c i a l Receiver , Mr. S tephen E l e f t h e r i o u , appeared.

Date o f Hearing 16 June 1992