McGoldrick v Official Trustee in Bankruptcy
[1993] FCA 961
•21 DECEMBER 1993
IAN ANDREW McGOLDRICK v. THE OFFICIAL TRUSTEE IN BANKRUPTCY (as trustee of the
estate of Ian Andrew McGoldrick, a bankrupt) No. VG412 of 1992
FED No. 961/93
Number of pages - 8
Bankruptcy - Statutes
(1993) 119 ALR 253
(1993) 47 FCR 547
COURT
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIAN DISTRICT REGISTRY
GENERAL DIVISION
NORTHROP, RYAN and O'LOUGHLIN JJ
CATCHWORDS
Bankruptcy - discharge of bankrupt - application to review decision of Official Trustee to file notice of objection to discharge - whether general power to review conferred by s.178 Bankruptcy Act 1966 available to challenge decision of Trustee to enter objection - statutory grounds for objection by Trustee - reasonable belief by Trustee as to existence of grounds for objection - application of Bankruptcy Amendment Act 1991 - transitional provisions.
Statutes - interpretation - whether provisions allowing for specific powers of review ousts general statutory power.
Bankruptcy Act 1966 s.149, 178
Bankruptcy Amendment Act 1991 s.27
Bankruptcy Rules 51A.
Anthony Hordern and Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1.
Powell v Official Trustee in Bankruptcy (1990) 96 ALR 607.
Re Powell and Powell; Ex parte The Official Trustee in Bankruptcy and Power (unreported Federal Court of Australia, Northrop J 13 November 1990).
Refrigerated Express Lines (A/sia) Pty Ltd v Australian Meat and Live-Stock Corporation (1980) 44 FLR 455.
Reseck v The Commissioner of Taxation (1975) 133 CLR 45.
Re Tyndall (1977) FLR 6.
Vanguard Service Print v Mercovich (1985) 10 FCR 32.
Van Reesema v Official Receiver in Bankruptcy (1983) 50 ALR 253.
HEARING
MELBOURNE
#DATE 21:12:1993
The appellant appeared in person
Counsel for the respondent: Mr J Lenczner
Solicitor for the respondent: Australian Government Solicitor
ORDER
THE COURT ORDERS: 1. That the appeal be dismissed.
2. That the appellant pay the costs of the respondent such costs to be taxed in default of agreement.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
NORTHROP, RYAN and O'LOUGHLIN JJ This is an appeal from a judgment of a single Judge of the Court by which his Honour dismissed an application by the appellant bankrupt for an order that the Official Trustee ("the Trustee") withdraw a notice of objection to the bankrupt's discharge from bankruptcy which had been entered on 9 April 1992. That application was brought under s.178 of the Bankruptcy Act 1966 ("the Bankruptcy Act") which has at all times provided:
"If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable."
The appellant had become bankrupt on 14 April 1989 upon presentation of a debtor's petition. By virtue of s.149(1) of the Bankruptcy Act he would have been discharged from bankruptcy on 14 April 1992 by operation of law after the expiration of three years had not the Trustee, before that date, entered an objection under sub-s. 149(3). The facility to extend a bankruptcy by entering an objection was afforded by sub-ss (3) and (4) of s.149 which provided:
"(3) A bankrupt is not discharged from bankruptcy by virtue of this section if:
(c) the Registrar, the Inspector-General or the trustee has entered, or a creditor has, with the leave of the Court, entered, an objection, in accordance with the prescribed form and in the prescribed manner, to the discharge of the bankrupt by force of this section and the objection has not been withdrawn or lapsed before the time when the bankrupt would have been so discharged but for this subsection; or
(d) an order of the Court under subsection (12) is in force in relation to the bankrupt.
(4) An objection shall not be entered under paragraph (3) (c) otherwise than on one or more of the following grounds:
(a) that the bankrupt is able, or is likely within 5 years from the date of the bankruptcy to be able, to make a significant contribution to his estate;
(b) that the discharge of the bankrupt by force of this section would prejudice the administration of his estate;
(c) that the bankrupt has failed to co-operate in the administration of his estate;
(d) that the conduct of the bankrupt, either in respect of the period before or the period after the date of the bankruptcy, has been unsatisfactory."
The succeeding sub-sections of s.149 provided for withdrawal and lapse of objections and by sub-ss (8) and (9) empowered the Court to determine the period, exceeding 3 years from the date of bankruptcy, after which an objection would lapse. By sub-s (12) it was provided:
"The Court may, at any time before the discharge of a bankrupt, on the application of the Registrar, the Inspector-General, the trustee or a creditor, direct that the bankrupt shall not be discharged from bankruptcy by virtue of this section."
In deciding whether to make an order under sub-ss (8), (9) and (12) the Court was directed to take into account such matters (if any) as were prescribed for the purposes of the relevant sub-section. The prescribed matters were to be found in r.51A of the Bankruptcy Rules in the following terms:
"51A. The following matters are prescribed for the purposes of sub-section 149(10) and (13) of the Act:
(a) whether the bankrupt is able, or is likely within 5 years from the date of the bankruptcy to be able, to make a significant contribution to this estate:
(b) whether the discharge of the bankrupt would prejudice the administration of his estate;
(c) whether the bankrupt has co-operated in the administration of his estate;
(d) the conduct of the bankrupt, in respect of the period both before and after the date of the bankruptcy;
(e) any matters arising out of the conduct of the bankrupt as a bankrupt, being matters that are the subject of an investigation that is not completed;
(f) the age and state of health of the bankrupt;
(g) any evidence adduced by the bankrupt, the Inspector-General, the trustee, the Official Receiver or a creditor relating to -
(i) the circumstances in which the debts of the bankrupt were incurred, including the bankrupt's experience in, and understanding of, financial matters and of the obligations imposed on the bankrupt as a result of incurring the debts; and
(ii) the conduct of the bankrupt's creditors, including the nature and extent of any inquiries made by the creditors into the bankrupt's ability to pay his debts and whether the bankrupt was induced to incur debts by conduct on the part of the creditors that departed from the standards of normal and reasonable commercial practice."
The learned trial Judge noted that the objection entered by the Trustee on 9 April 1992 was based on all of the grounds specified in sub-s.149(4). However, it was common ground on the hearing of this appeal that, although it contained four paragraphs, the objection invoked only the three grounds afforded by paragraphs (a), (b) and (d) of sub-s.149(4).
On 1 July 1992, the day on which the bankrupt's application under s.178 was returnable, the Bankruptcy Amendment Act 1991, ("the Amendment Act") came into force. Amongst other changes to the Bankruptcy Act which were effected by the Amendment Act were the repeal of ss. 149 and 150 and the insertion in lieu thereof of entirely new provisions. The new s.149 provides for automatic discharge from bankruptcy by stipulating, so far as is relevant:
"149.(1) Subject to section 149A, a bankrupt is, by force of this subsection, unless sooner discharged in accordance with Division 3, discharged from bankruptcy in accordance with this section.
....
(2) If:
(a) the bankrupt became a bankrupt before the commencement of section 27 of the Bankruptcy Amendment Act 1991; and
(b) immediately before the commencement of that section, either:
(i) paragraph 149(3)(c) of the Bankruptcy Act as amended applied in relation to the bankrupt; or
(ii) an order under subsection 149(8) or (12) of the Bankruptcy Act 1966 as amended was in force in relation to the bankrupt;
the bankrupt is discharged at the end of the period of 3 years from:
(c) the date on which the bankrupt filed his or her statement of affairs; or
(d) the date of commencement of that section; whichever is the later.
(3) If the bankrupt became a bankrupt before the commencement of section 27 of the Bankruptcy Amendment Act 1991, and subsection
(2) does not apply in relation to the bankrupt, the bankrupt is discharged at:
(a) the end of the period of 3 years from the date on which the bankrupt filed his or her statement of affairs; or
(b) the commencement of that section; whichever is the later.
(4) If the bankrupt becomes a bankrupt after the commencement of section 27 of the Bankruptcy Amendment Act 1991, the bankrupt is discharged at the end of the period of 3 years from the date on which the bankrupt filed his or her statement of affairs."
Section 149A creates a new regime for extension of the period of bankruptcy by means of an objection. Sub-sections (1) and (2) of s.149A provide:
"149A.(1) If an objection to the discharge of a bankrupt has taken effect in accordance with section 149G, then, unless the objection is withdrawn or cancelled, the reference in whichever of subsections 149(2), (3) and (4) applies in relation to the bankrupt to the period of 3 years from the date on which the bankrupt filed his or her statement of affairs is taken to be a reference to the prescribed number of years from the prescribed date.
(2) For the purposes of subsection (1):
(a) the prescribed number of years is:
(i) if the objection was made on a ground, or on grounds that included a ground, referred to in paragraph 149D(1)(a), (b), (c), (d), (e), (f), (g) or (h) - 8 years; or
(ii) in any other case - 5 years; and
(b) the prescribed date is:
(i) if the objection was made on a ground, or on grounds that included a ground, referred to in paragraph 149(D)(a) or (h) - the date on which the bankrupt returned to Australia; or
(ii) in any other case - the date from which the bankrupt filed his or her statement of affairs."
Provision is then made by s.149A(3) for the withdrawal or cancellation of objections.
The new facility for filing objections is conferred by s.149B in these terms:
"Subject to the following provisions of this Subdivision, at any time before a bankrupt is discharged from bankruptcy under section 149, the trustee or Official Receiver may file with the Registrar a written notice of objection to the discharge."
The effect of the repeal of the former s.149 on objections which were current on 1 July 1992, and on proceedings which were then pending, was stipulated as follows by s.54 of the Amending Act:
"54.(1) Any objection to the discharge of a bankrupt that was entered under paragraph 149(3)(c) of the Principal Act and had not been withdrawn or lapsed before the repeal of section 149 of that Act by this Act lapses upon that repeal but the trustee or Official Receiver is not precluded by the lapsing of that objection from filing a notice of objection under section 149B of the Principal Act as amended by this Act.
(2) Any proceeding that was pending before the Court, and any order by the Court that was in force, under section 149 of the Principal Act immediately before the repeal of that section lapses upon that repeal."
The learned primary Judge concluded that s.178 was not available to review a decision of a trustee to enter an objection under the former s.149(3)(c). His Honour based that conclusion on the view that the former ss.149 and 150 constituted a "code" with respect to discharge from bankruptcy so that the specific powers thereby conferred on the Court rendered unavailable the general power of review given by s.178.
His Honour relied upon the well-established rule of construction that a general statutory provision, such as s.178, which might otherwise cover particular circumstances, will not apply when there exists within the same statute a specific provision covering the same circumstances. As Stephen J put it: "Such a rule of construction has its place where contrariety is manifest...": Reseck v The Commissioner of Taxation (1975) 133 CLR 45 at 53. The need for such a rule becomes apparent when the specific provision contains qualifications that would be avoided if the general provision were applied: see, for example, the remarks of Deane J in Refrigerated Express Lines (A/Asia) Pty Ltd v Australian Meat and Live-stock Corporation (1980) 44 FLR 455 at 468-469; see also Anthony Horden and Sons Ltd v Amalgamated Clothing and Allied Trades Union of Australia (1932) 47 CLR 1 at 7 per Gavan Duffy CJ and Dixon J where their Honours said:
"When the Legislature explicitly gives a power by a particular provision which prescribes the mode in which it shall be exercised and the conditions and restrictions which must be observed, it excludes the operation of general expressions in the same instrument which might otherwise have been relied upon for the same power."
As the learned trial judge observed, s.178 of the Bankruptcy Act is expressed in the widest of terms - an observation that accords with the view of Deane J in Re Tyndall (1977) 30 FLR 6 at 9-10:
"In my view, the wording of s.178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omission or decision of the trustee, the court is only empowered to interfere with the trustee's act, omission or decision if it is of the view that the trustee has acted absurdly or unreasonably or in bad faith. Once the matter is properly before the court, the court is, by the express words of s.178, empowered (and, as I have said, obliged) to make such order in the matter as it thinks just and equitable."
In the Court below, the learned trial judge compared the breadth of s.178 with the contents of the former s149 and said of the latter:
"By contrast, the provisions of s149 and the surrounding sections, as they stood prior to 1st July 1992, were specific. Section 149(9) offered the bankrupt a means of challenging the entering of an objection to discharge."
With respect, it was not correct to describe sub-s.149(9) as offering the bankrupt "a means of challenging the entering of an objection to discharge." The wording of that subsection was:
"The Court may, at any time before the expiration of 5 years from the date of the bankruptcy, on the application of the bankrupt, order that the period at the expiration of which an objection entered under paragraph (3)(c) will lapse be such period, being a period exceeding 3 years but not exceeding 5 years, commencing on the date of the bankruptcy as is specified in the order." (Emphasis added)
Subject to the overriding power of the Court to reduce or extend the period, the usual consequence of the entry of an objection prior to 1 July 1992 was that the period of bankruptcy was extended from three to five years. Thus the right to apply to the Court that was afforded to a bankrupt under sub-s.149(9) was only a right to ask the Court to review the period of the extension. Even in a case where a bankrupt was wholly successful, the Court would only be able to reduce the period of bankruptcy to three years and one day for the reduced period must still be a "period exceeding 3 years..." In other words, the former sub-s.149(9) assumed the continued existence of the objection and only gave to the bankrupt the right to seek a reduction of the automatic extension of two years. Nowhere in the former s.149 or in the former s.150 was there a power in the bankrupt to challenge the decision of the objector to enter the objection. The former sub-s.150(1) did give a general right to a bankrupt to "apply to the Court at any time for an order of discharge" but, as was the case with sub-s.149(9), that did not constitute a challenge to the entry of the objection or a challenge to the decision to enter the objection.
The entry of an objection was and remains a serious matter. Sheppard J explained its importance in Van Reesema v Official Receiver in Bankruptcy (1983) 50 ALR 253 at 264 in these terms:
"It seems to me that the purpose of s 149(3) and (4) is to cast upon a person entitled to enter an objection, ie the Registrar, the Inspector-General, the trustee or a creditor (with the leave of the court) an obligation to apply his mind carefully to the question of whether there is sufficient reason or basis for the entry of an objection upon one or more of the available grounds. By that I do not mean that the objector must be satisfied that the ground exists upon the basis of an absolute standard. But, in my opinion, he must turn his mind to the problem and ought not to enter the objection unless reasonably satisfied of the correctness of what the ground implies. The reason for that view is the clear intention of the legislature that bankrupts are to be automatically discharged after the expiration of three years from the date of their bankruptcies unless at least one of the grounds exists. The legislature has thus specified with precision the circumstances in which the operation of the section will be stayed."
Thus, the power to lodge an objection was and (as will be seen) remains the subject of controls. In particular, an objector was not to lodge an objection unless he had "sufficient reason to believe that there exists one or more of the grounds specified in s149(4)": Vanguard Service Print v Mercovich (1985) 10 FCR 32 at 40.
If, prior to the introduction of the Amendment Act, the legislation permitted the Court to review the decision making process and the conduct of an objector in entering an objection, the object of the review would have been to ascertain what was within the knowledge of the objector at the time when the decision was made and the objection was entered. Where then did the bankrupt find that right (if, indeed, he had any such right) to test the decision of the objector? While it was not to be found in the repealed ss149 and 150, an ordinary grammatical reading of s178 would seem to have afforded the bankrupt the avenue of review that he was seeking; in the language of the section, he was a person who was "affected" by a "decision" of his trustee and, as such, it would seem that he should have been able to apply to the Court pursuant to the section for "such order in the matter as it thinks just and equitable." The position has, of course, changed as a result of the introduction of the Amendment Act. It is now clear that the issue of reviewing the decision to lodge an objection is covered specifically by ss149K to 149Q. The decision of the trustee or Official Receiver to file a notice of objection may now be reviewed upon the application of a bankrupt by the Inspector-General or the Administrative Appeals Tribunal in accordance with the code contained in subdivision C - "Review of objection" - of Division 2 - "Discharge by operation of law" of Part VII of the Bankruptcy Act. We express no view as to whether, as a result of the amendments, there is now a place for s178 in the review of a decision to object to a bankrupt's discharge.
His Honour, however, was fortified in concluding that the provisions of s.178 were not available to the bankrupt in the period prior to the introduction of the Amendment Act because of the emphasis that he placed on certain provisions of s.149 and s.150. For example, reference has already been made to the prescribed matters in rule 51A as matters that a Court would have been bound to take into account if an application had been made under (say) the former sub-s.149(9). As to this, his Honour said:
"If s178 had been applicable, it would not have been so bound."
His Honour also pointed out that s.178 contained no provision for the supply of the trustee's report that the Court is bound to take into consideration when considering an application for a discharge under s.150. There are two answers to these concerns: first, the repealed ss.149 and 150 did not address the right to challenge the entry of the objection or the decision to object: they only permitted a challenge to be mounted with respect to the length of the period by which the bankruptcy was extended. Secondly, the Court would have been bound to take into account, in an application under s.178, all matters that were relevant to the bankrupt and to the trustee's objections as well as to the grounds of the objection. Having regard to the width of the power of review that is contained in s.178, it would be surprising if any matter of peculiar significance to the provisions of ss.149 and 150 were not caught within the net of s.178.
His Honour was also of the opinion that ss149 and 150 "constituted a code" and that the presence of such a code ousted any application that s178 might otherwise have had to the circumstances of the appellant. He considered that support for that conclusion was to be found in Powell v Official Trustee in Bankruptcy (1990) 96 ALR 607 at 609 per Jenkinson J and 617 per Beaumont and Hill JJ where their Honours said:
"As has been said, s 149(8) and s 149(12) provide two possible alternative ways of extending the term of the bankruptcy. But, for present purposes, together they constitute a code in this area. It was not open to the court to extend time except by reference to the powers conferred by either s 149(8) or s 149(12) as the only two possible sources of the court's jurisdiction."
But the "code" to which reference was made in Powell v Official Trustee in Bankruptcy related to the provisions of ss.149(8) and 149(12) and those subsections were limited in their operation to the period of bankruptcy and issues that might have determined an extension or a reduction of that period. Commenting on the decision of the Full Court in Powell v Official Trustee in Bankruptcy, Northrop J in Re Powell and Powell; Ex parte The Official Trustee in Bankruptcy and Powell (unreported: judgment delivered 13 November 1990) said:
"The essence of the reasons of the Full Court for allowing the appeal was that sections 149 and 150 of the Bankruptcy Code constituted a code with respect to the discharge of bankrupts and that the Court had no power or jurisdiction to make an order under sub-section 149(8) for the purpose of enabling an application under s.149(12) to be heard and determined during a period after the expiration of 5 years from the date of bankruptcy."
It was therefore quite appropriate to classify ss.149 and 150 as a code so long as it is understood that it was a code that dealt with discharges of bankrupts and the power to increase or decrease the periods of bankruptcies. As a code, the provisions did not, however, extend to the decision-making process of deciding to enter an objection and the act of entering an objection to an automatic discharge. If that decision or that act was to have been reviewed by the Court, the power of review had to be found in some provision other than ss149 and 150. In Van Reesema v Official Receiver in Bankruptcy (supra) Sweeney J said at 260:
"The legislature has by sub-ss(3) and (4) conferred upon the trustee, amongst others, the great power of preventing that discharge occurring by entering an objection, which, however, shall not be entered otherwise than on one or more of the specified grounds."
In our opinion there was no reason for the learned trial judge to reject the presence and the utilization of s178; he was in error in that regard. The bankrupt was entitled, prior to 1 July 1992, to seek review under s178 of the trustee's decision to enter an objection. It would be incongruous if the exercise of such a "great power" could not have been challenged and reviewed by the court. Yet that would have been the result unless s.178 had been capable of being called in aid.
In this regard, it is interesting to note the actual decision in Van Reesema. That case did not involve s.178 of the Bankruptcy Act. There, the sequestration order had been made on 17 September 1979. On 19 November 1981, within the three year period from the date of the bankruptcy, the trustee entered an objection under sub-s.149(3). On 10 March 1982, within the three year period, the bankrupt made an application for an order of discharge under s.150. On 4 January 1983, after the expiration of the three year period, the Court refused the application for discharge. The bankrupt appealed. On the appeal, the question arose as to whether the objection which had been entered by the trustee was valid. A majority of the Full Court, Sweeney and Sheppard JJ, held that the objection did not comply with the requirements of sub-s. 149(4) and hence was invalid. The majority of the Full Court held that the bankrupt had been discharged from bankruptcy on 17 September 1982 by operation of law. In the result, the Full Court allowed the appeal, set aside the order of 4 January 1983 and declared that the bankrupt was discharged from bankruptcy upon the expiration of three years from the date of his bankruptcy. At (1983) 50 ALR 260, Sweeney J said:
"Section 149 provides that 'subject to this section' a bankrupt is, by force of this section, unless sooner discharged in accordance with s.150, discharged from bankruptcy upon the expiration of three years from the date of the bankruptcy. The legislature has by sub-ss (3) and (4) conferred upon the trustee, amongst others, the great power of preventing that discharge occurring by entering an objection, which, however, shall not be entered otherwise than on one or more of the specified grounds.
The entry of an objection in accordance with these sub-sections prevents a discharge by operation of law upon the expiration of three years from the date of the bankruptcy. It requires a bankrupt to undertake the trouble and expense of an application to the court, the powers of which are limited by s.150. In the present case I do not find it necessary to decide whether s.149(4) calls for strict compliance or whether substantial compliance is sufficient. Upon either view, the notice relied upon in this case was not, in my opinion, entered on one of the statutory grounds. The event which, by force of s.149(3)(b), may prevent a discharge did not happen. In the result, the bankrupt was discharged from bankruptcy upon the expiration of three years from the date of the bankruptcy."
Implicit in the reasoning of the majority is that the Court, in the exercise of the powers conferred by sub-s.149(8), (9) or (12) of s.150, has power to determine the validity of an objection to discharge entered under sub-s.149(3). We can see no valid reason why the Court should not exercise the power conferred by s.178 to, in substance, review a decision of a trustee to enter an objection under sub-s.149(3). In doing so, the Court is not exercising a power conferred by s.149 or s.150. It follows that s.54 of the Amending Act does not operate to cause the application by the appellant under s.178 to lapse. It should be noted that s.178 applies with respect to a trustee only and not with respect to the other persons mentioned in sub-s.149(3).
Accordingly, it is necessary to consider the application of the appellant under s.178 of the Bankruptcy Act.
Although not clearly expressed in the notice of appeal, the appellant is seeking a declaration under s.178 of the Bankruptcy Act to the effect that the objection entered by the Trustee is of no effect, a consequential order that the objection be set aside and a declaration that the appellant was discharged from bankruptcy upon the expiration of three years from the date of his bankruptcy. The basis for the case by the appellant is that on 9 April 1992, being the day the objection was entered, the factual material before the Trustee was not sufficient to support the belief by the Trustee, acting objectively, that any one of the grounds specified in paras 149(4)(a) (b) or (d) existed. This involves a consideration of the factual material before the Trustee on that day.
At the hearing before the trial Judge, much of the evidence was directed to issues not relevant to the issue raised on this appeal. This Court must consider the material that was before the Trustee at the time he made the decision to enter the objection.
The objection to discharge entered by the Trustee was in the following form:
"Re: Ian Andrew McGoldrick, a bankrupt
The Official Trustee in Bankruptcy, one of whose addresses is 470 Collins Street, Melbourne, objects to the discharge of Ian Andrew McGoldrick of 33 Ruthven Way, Ringwood East 3135, in the State of Victoria, from bankruptcy by force of Section 149 of the Bankruptcy Act 1966 on the following grounds:-
1. That the bankrupt is able, or is likely within 5 years from the date of bankruptcy to be able, to make a significant contribution to his estate by virtue of his association with Supercare Centres Pty Ltd;
2. That the conduct of the bankrupt in respect of the period after the date of bankruptcy has been unsatisfactory in that he failed to provide satisfactory explanation as to the whereabouts of an associated company's, Audiencias Pty Ltd, book of accounts;
3. That the discharge of the bankrupt by force of this section would prejudice the administration of his estate in that an investigation into a chattel mortgage in favour of the male bankrupt's brother-in-law's company, Unitus Industries Pty Ltd, remains incomplete; and
4. That the discharge of the bankrupt by force of this section would prejudice the administration of his estate in that an investigation into his relationship with Supercare Centres Pty Ltd remains incomplete.
Dated this 9th day of April, 1992."
Ground 1 is based upon para 149(4)(a) of the Bankruptcy Act. Ground 2 is based upon para 149(4)(d). Grounds 3 and 4 are based upon para 149(4)(b). Those paragraphs have been set out earlier in these reasons.
Immediately before his bankruptcy, the appellant was a medical practitioner. He was involved in the operation and management of private hospitals, nursing homes and medical clinics. He carried out these operations through a large number of companies and trusts. It is quite apparent that he treated these companies as if they were his private property. He caused the assets of the companies to be transferred between the companies as if those assets were his own. The legal structures of the companies were in existence, but for practical purposes, the appellant treated the companies and their assets as if they were his.
On 14 April 1989 the appellant and his wife, Dorothy Charlotte McGoldrick, presented a debtors' petition against a partnership pursuant to s.56 of the Bankruptcy Act. The petition stated that the appellant and his wife were carrying on business in partnership in the name "Consolidated Healthcare Group" at 156 George Street, Fitzroy. The statement of affairs filed by the appellant disclosed total unsecured creditors being owed $2,168,599 and total assets of $38 being moneys in a bank. The appellant disclosed contingent and other liabilities amounting to $12,500,000 being amounts claimed by patients suing him. No other creditors or assets were disclosed. By her statement of affairs, Mrs McGoldrick disclosed $82,536 owing to unsecured creditors and $500 of assets in bank accounts. The statement of affairs relating to the partnership disclosed $50,200 owing to unsecured creditors and no assets. This statement also disclosed the claims by patients amounting to $12,500,000.
The petition was accepted on 14 April 1989. Thus, under sub-s. 56(4) the appellant became a bankrupt on that day.
The only asset recovered by the Trustee was a Rolls Royce motor car of the appellant served by the Trustee pursuant to powers conferred by the Bankruptcy Act. His car was sold for $21,786. The appellant has not contributed any amount to his bankrupt estate.
After his bankruptcy, the appellant has continued to be involved in the operation of private hospitals, nursing homes and medical clinics.
The learned trial Judge made findings of fact with respect to each of the grounds of objection entered by the Trustee. With respect to ground 1 his Honour said:
"That company (Supercare Centres Pty Ltd) operates a number of medical clinics, at which registered medical practitioners practise, in return for which they pay to Supercare Centres Pty Ltd a percentage of the gross fees which they receive. Mr McGoldrick described himself as a "consultant" to the company. On his own evidence, he performs work which is of benefit to the company. He tends to minimise the importance of that work and the quantity of it. He receives from the company the use of a motor vehicle, including fuel, as well as the use of an office and secretarial services. He does not receive any remuneration. In my view, this non-receipt of remuneration is the result of a choice made by Mr McGoldrick that he does not wish to have available to him money which might be claimed by the trustee. If he elected to receive remuneration, he would have sufficient influence on those who are empowered formally to make decisions on behalf of the company to induce them to pay him. On this basis, he has the ability to make a significant contribution to his estate."
With respect to grounds 3 and 4 his Honour said:
"The chattel mortgage is dated 1st June 1987. Stamp duty on it was paid, together with a penalty, on 13th April 1989, the day before Mr and Mrs McGoldrick lodged their debtor's petition. The chattel mortgage covers chattels which were the furniture of the former matrimonial home of Mr and Mrs McGoldrick at 4 Victoria Crescent, Mont Albert and chattels which had previously been at Wongalear, a property at Portsea. Unitus Industries Pty Ltd is a company controlled by Mr McGoldrick's brother, David Hemming. There is no evidence that the date of the chattel mortgage is genuine; Mr McGoldrick concedes that it was undated when executed, and suggests that the date was probably filled in later by the solicitors who acted for Unitus Industries Pty Ltd. Following the bankruptcy, the chattels which were in the Mont Albert home were removed into storage. They were later allegedly transferred to a company called Sierra Glen Pty Ltd to be held in trust for Mr and Mrs McGoldrick's children, and some were returned to the Mont Albert home, where Mrs McGoldrick and all or some of the children live. There is no evidence as to the fate of the remaining chattels. On the evidence before me, which included that of Mr Hemmings, there is a powerful case for saying that the chattel mortgage was a sham, designed to place the chattels out of reach of Mr McGoldrick's creditors. There is every reason why the trustee would wish to continue investigations into the transactions concerning the chattels."
"Having heard Mr McGoldrick's evidence, I am left with the impression that he is less than frank about the work he performs for Supercare Centres Pty Ltd and the extent to which he is involved in the management of that company. He obviously has considerable knowledge of the company's affairs. He was chosen to swear an affidavit for use in a proceeding in the Supreme Court of Victoria, in which Supercare Centres Pty Ltd sought an injunction restraining dealings with some patient records, to which it alleged an entitlement. This was despite the fact that Mr McGoldrick claimed that the company was managed by his brother, Bryan Michael McGoldrick and had several others on its staff. Bryan Michael McGoldrick also gave evidence, in which he conveyed the impression that he performed a minimal amount of clerical and administrative work for Supercare Centres Pty Ltd, in return for an annual salary of $35,000.00, and that he had little knowledge of the affairs of the company. There is every reason why the trustee would wish to continue investigations into the involvement of Mr McGoldrick."
With respect to ground 2, his Honour, after referring to Audiencias Pty Ltd, a company of which the appellant used to be a director, said:
"The evidence is that on 19th February 1992 Mr Chua (an officer of the Trustee) asked Mr McGoldrick as to the whereabouts of the books of account of Audiencias Pty Ltd. Mr McGoldrick referred him to some accountants, who he said were the accountants of that company. He subsequently informed Mr Chua that the books had either been seized by estate agents acting on behalf of a mortgagee of some premises in Fitzroy or some premises in Ringwood, when those estate agents were preparing those properties for sale, and had been sent to a rubbish tip, or were present in some other premises in Ringwood which were destroyed in a fire. If either of these fates was indeed that of the books of account of Audiencias Pty Ltd, it is difficult to see why Mr McGoldrick did not give that explanation to Mr Chua in the first place. The episode appears to be typical of Mr McGoldrick's conduct towards his trustee. He exhorts the trustee to pursue assets which he alleges that other persons have unlawfully taken from him, but when the trustee seeks to inquire of any assets of which Mr McGoldrick might still have control, he resorts to obfuscation."
These findings were based on evidence led before the trial Judge. Nevertheless most, if not all, of the material contained in that evidence was known to the Trustee on 9 April 1991. This Court accepts the findings made by the trial Judge. There was ample evidence to support them.
The Court is of the opinion that on those findings, which were supported by the material before the Trustee on 9 April 1992, a person, acting reasonably, could have formed the belief reached by the Trustee of the existence of the grounds specified in paragraphs 149(4)(a), (b) and (d) of the Bankruptcy Act. In these circumstances, the action of the Trustee in entering the objection to discharge the mortgage was valid.
The appeal is dismissed with costs.
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