Paul Palenkas v Raymor (Brisbane ) Pty Ltd

[1982] FCA 237

Re: PAUL PALENKAS
Ex parte: RAYMOR (BRISBANE) PTY. LIMITED (1982) 66 FLR 115
No. 496 of 1981
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND
Fitzgerald J.(1)

CATCHWORDS

Bankruptcy - Discharge by operation of law - direction that bankrupt be not discharged - considerations relevant to application for such direction - leave to enter objection to automatic discharge - considerations relevant to application for such leave - "grave departure from acceptable commercial standards" - leave to enter objection granted.

Bankruptcy Act 1966, sub-ss. 149(3), (4) and (12)

Bankruptcy Rules, Rule 51A

Bankruptcy - Discharge by operation of law - Application that bankrupt be not discharged - Considerations relevant to such application - Leave to enter objection for automatic discharge - Considerations relevant to application - "Grave departure from acceptable commercial standards" - Bankruptcy Act 1966 (Cth), ss. 149, 150 - Bankruptcy Rules, r.51A.

HEADNOTE

The bankrupt presented his own petition on 14th October, 1981. A little over one year later the applicant, one of his unsecured creditors, brought an application pursuant to s. 149(1) of the Bankruptcy Act 1966 to prevent his automatic discharge. The applicant made out a prima facie case that the bankrupt continued to trade after he knew that he was insolvent and made fraudulent misrepresentations as to his assets in the course of obtaining a loan which gave rise to his indebtedness to the applicant.

Held: (1) In considering an application under s. 149, the court is required to take into account all of the matters prescribed by r.51A of the Bankruptcy Rules. On the present evidence, however, an order directing that the bankrupt should not be discharged from bankruptcy by virtue of s. 149(1) was not justified.

(2) The court would, however, give the applicant leave to enter an objection to the bankrupt's discharge on the ground set forth in s. 149(4)(d).

HEARING

Brisbane, 1982, November 1, 8. #DATE 8:11:1982

APPLICATION.

Application by an unsecured creditor for a direction that the bankrupt be not discharged from bankruptcy pursuant to s. 149 of the Bankruptcy Act 1966.

Lister Harrison, for the applicant.

The bankrupt did not appear.

Cur. adv. vult.

Solicitors for the applicant: Kootsookos & Quinn.

D. LEVIN

ORDER

1. Raymor (Brisbane) Pty Limited have leave to enter an objection in accordance with the prescribed form and in the prescribed manner to the discharge of the bankrupt Paul Palenkas by virtue of s.149 of the Bankruptcy Act on the ground that the conduct of the bankrupt in respect of the period before the date of his bankruptcy was unsatisfactory.

2. The costs of and incidental to this application be taxed and paid out of the estate of the bankrupt. Order accordingly.

JUDGE1

Paul Palenkas became bankrupt on his own petition on 14 October 1981. Little more than a year later, Raymor (Brisbane) Pty Limited, one of his unsecured creditors, has brought the present application to prevent his automatic discharge pursuant to sub-s. 149(1) of the Bankruptcy Act 1966 upon the expiration of 3 years from the date of his bankruptcy. The debt owed to Raymor, according to the bankrupt's Statement of Affairs, is approximately $17,500. His Statement of Affairs also revealed that his total unsecured liabilities were almost $160,000 and his total assets only slightly in excess of $11,000. Raymor's present application is founded upon contentions that the bankrupt continued to trade after he must have known that he was insolvent and that in the course of obtaining the loan which has given rise to his indebtedness to Raymor he made fraudulent misrepresentations as to his assets. The bankrupt did not appear. I do not propose to make positive findings in relation to Raymor's allegations. However, it has made out a prima facie case in respect of the matters which it alleges and I propose to consider its application on the footing that the bankrupt's conduct was as it asserted. I reserved my decision to consider whether or not it was appropriate for Raymor to have made its application at this point and because it was not apparent to me which of Raymor's alternative claims should be acceded to if it is entitled to succeed at all.

The policy underlying the present legislation recognizes that it is in the interests of the public as well as the person unable to pay his debts, that he should not be unduly denied freedom, equality of status and opportunity, or the ability and inducement to support himself and his family and contribute to society by his efforts. Accordingly, the Act is in large part relevantly concerned with obtaining and administering the assets of the person unable to pay his debts for the benefit of his creditors and releasing the debtor from his obligations. However, the legislature has thought it appropriate that there should be a period during which the status and consequences of bankruptcy continue. It is not presently necessary to investigate the considerations underlying that decision. It is sufficient to note that the standard period provided for by sub-s. 149(1) is three years from the date of the bankruptcy; at that point a discharge from bankruptcy occurs by force of the sub-section. However, sub-s. (1) is expressed to be subject to the other provisions of s.149. Further, s.150 makes provision for the earliest discharge of a bankrupt in an appropriate case by an order of the Court.

Provision is made by sub-s. 150(4) for a creditor whose debt has been proved in a bankruptcy to be heard on an application for discharge pursuant to s.150. If certain matters are established the Court is required to refuse to make an order of discharge or to suspend the operation of the order (sub-s. 50(5)). Even where none of those matters is established, the Court may refuse to make an order of discharge or may suspend the operation of the order (sub-s. 150(9)). It is well established that, despite the general legislative policies underlying the Act, it may be appropriate in particular cases because of the public interest in acceptable standards of commercial morality that the status of bankruptcy with its attendant consequences should be continued in respect of some bankrupts, perhaps even permanently, but certainly for a longer than usual period.

By virtue of sub-s. 149(12), the Court may direct that a bankrupt shall not be discharged from bankruptcy by virtue of sub-s. 149; i.e. so far as is presently material, not be automatically discharged upon the expiration of three years from the date of his bankruptcy. A creditor may apply for such an order (ibid). In deciding whether to make an order under sub-s. 149(12), the Court is required to take into account certain matters which are prescribed by Rule 51A, which provides:

"51A. The following matters are prescribed for the purposes of sub-sections 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 his 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 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.

Raymor drew attention to paragraphs (d) and (g) (i) of Rule 51A. However, in my opinion, it is incorrect to isolate some only of the prescribed matters, when considering an application under sub-s. 149(12). The Court is required to take all such matters into account. In any particular case, some, such as those pointed to by Raymor, may support an order that a bankrupt not be discharged, whilst other matters may indicate that the order should be refused. In my opinion, the material presently available does not justify an order under sub-s. 149(12).

The refusal of the present application by Raymor for an order under sub-s. 149(12) of the Act leaves open the possibility of a fresh application by Raymor or any other creditor for an order that the bankrupt not be discharged. The present refusal does not entitle the bankrupt to a discharge. He must still wait until the expiration of three years from the date of his bankruptcy or himself make application for a discharge pursuant to s.150. His commercial morality would be amongst the various relevant considerations were the bankrupt to make such an application.

Even if a creditor is unable to obtain an order that a bankrupt not be discharged from his bankruptcy, it may be able to delay the discharge. By sub-s. 149(3)(c) a bankrupt is not discharged from bankruptcy by virtue of s.149 if an objection is duly entered to the discharge of the bankrupt by force of that section "and the objection has not been withdrawn or lapsed before the time when the bankrupt would have been so discharged but for this sub-section". A creditor may only enter such an objection with the leave of the Court (ibid). Further, by sub-s. 149(4) an objection shall not be entered otherwise than on one or more of specified grounds, including that relied on by Raymor, viz:

"(d) The conduct of the bankrupt . . . in respect of the period before . . . the date of the bankruptcy, has been unsatisfactory."

By virtue of sub-s. 149(6) an objection entered by a creditor may be withdrawn only with the leave of the Court. Further, an objection lapses at the expiration of 5 years from the date of the bankruptcy or when an order is made for the discharge of the bankrupt under s.150. It is only when an objection is withdrawn after the time when the bankrupt would otherwise have been discharged or lapses by the effluxion of time and there is no other objection which has neither been withdrawn nor lapsed, and there is no impediment by virtue of paragraphs (a), (b) and (d) of sub-s. 149(3), that a bankrupt in respect of whose discharge an objection has been entered obtains a discharge by force of s.149: sub-s. 149(14). The period of 5 years from the date of the bankruptcy provided for by sub-s. 149(7) may be extended or reduced by the Court (see sub-ss. 149(8) and (9)). In deciding whether to make an order under either of those sub-sections, the Court is required by sub-s. 149(10) to take into account the matters prescribed by Rule 51A.

There is little point in attempting a detailed analysis of the bankrupt's conduct in the present case. As the material presently stands, Raymor has made out a prima facie case that the conduct of the bankrupt before his bankruptcy was unsatisfactory. Indeed, if, as I have assumed for the purposes of this application, the facts are as deposed to by Raymor, they establish that the bankrupt's conduct involved a grave departure from acceptable commercial standards.

In my opinion this is an appropriate case in which to give leave to the creditor to enter an objection to the discharge of the bankrupt by force of s.149, with the consequences which I have above described.

Accordingly, I order that Raymor (Brisbane) Pty Limited have leave to enter an objection in accordance with the prescribed form and in the prescribed manner to the discharge of the bankrupt Paul Palenkas by virtue of s.149 of the Bankruptcy Act on the ground that the conduct of the bankrupt in respect of the period before the date of his bankruptcy was unsatisfactory and that the costs of and incidental to this application be taxed and paid out of the estate of the bankrupt.