Re Bruce Ashleigh McCarthy

[1982] FCA 322

JUDGMENT

L O C K M T J Case N o 187 of 1978

BRUCE ASHLEIGH McCARTHY

HIS HONOUR: Thls is an appl lca t lon for d l scharge f rom bankruptcy

by Bruce Ashlelgh McCarthy, who was made bankrupt by

s e q u e s t r a t i o n o r d e r on 31 March 1978. The O f f l c l a l

Recelver lodged an o b j e c t l o n t o h l s d i scha rge f rom

bankruptcy under sectlon 1 4 9 of t h e A c t on t h e

following grounds:

1. Tha t t he bankrup t t r ans fe r r ed h i s Interest i n a

house a t S e a t o n t o h l s w l f e a f t e r t h e p r e s e n t a t i o n

o f t h e p e t i t l o n ;

2 . t h a t t h e b a n k r u p t t r a n s f e r r e d h l s o w n e r s h l p o f

an a c c o u n t a n c y p r a c t l c e t o a company Kaltoke Pty

L l m l t e d , a f t e r t h e p r e s e n t a t l o n o f t h e p e t l t l o n

and t h e c o n s l d e r a t l o n f o r t h e t r a n s f e r was g r o s s l y

Inadequate;

3. t h a t h e f a l l e d t o d l s c l o s e a n asset I n h l s e s t a t e -

namely,	a debt owed t o h m by Chrlstopher and
Barbara	Yates on h l s s t a t e m e n t o f a f f a l r s or a t

h l s f 1st Intermew.

c t m 3e

A t t h e t l m e o f h l s bankruptcy , the bankrupt was

l n p r a c t l c e as a self-employed publlc accountant and

t a x a g e n t . H e w a s not a member of any recognlzed

p ro fes s lona l o r accoun t lng body, nor was he a r e g l s t e r e d

t a x a g e n t . H e 1s a man of 35 years of age. H e i s

dlvorced from hls wlfe , and hls former wlfe cares f o r

t h e t h r e e c h l l d r e n o f t h e m a r r l a g e . H e pays malntenance

mccarthy 20.4.82 1

of $50 per week pursuant to an agreement between

hlrnself and hls former wlfe, which I ga ther has had

t h e s e a l of approval of the Famlly Court of A u s t r a l l a .

2-3 (next page numbered 4 )

mccarthy	20.4.82
c t m 4e

i

I need not set o u t i n detal l t h e h l s t o r y o f a l l

the	r e l evan t even t s l ead lng up	t o	the bankruptcy.
They	a r e f u l l y c a n v a s s e d i n t h e	Of f i c l a l	Receiver's

r e p o r t a n d i n t h e e v l d e n c e t h a t h a s b e e n g i v e n

today. It 1s s u f f i c l e n t If I s a y t h a t a l t h o u g h

the bankrupt was a selfl-employed public accountant

and t ax agen t , he In 1975 became a m e m b e r of

a	pa r tne r sh ip wi th th ree o the r peop le and they
engaged	i n t h e b u s i n e s s o f b u l l d i n g h o u s e s o n

a s p e c u l a t i v e basis in Adelaide suburbs. Guarantees

were given by t h e b a n k r u p t t o s u p p o r t t h e i r

l l a b i l l t l e s t h a t arose I n t h e c o u r s e o f t h o s e

act ivl t les , t oge the r w i th the ac t lv l t l e s o f co rnpan les ,

lncludlng one known as A.R. Mac Pty Llmlted.

I n s h o r t , t h e b u l l d l n g v e n t u r e s d id n o t

succeed and a l though subs t an t l a l s ecu r i t i e s had been glven t o s e c u r e d c r e d i t o r s , t h e r e were

deficiencies and I n t h e r e s u l t t h e b a n k r u p t was

made bankrupt and most of h is d e b t s , In both

number and value, arlse o u t o f t h e g u a r a n t e e s t h a t

he gave. The estate h a s r e a l i z e d some $16,000

and t h e r e are many c r e d l t o r s whose debts have been

proved and the proofs that have been recelved and

admltted totalsome $165,000, so t h e r e 1 s a very

s u b s t a n t l a l deficiency I n t h e e s t a t e . No dividend

has been pa ld to credltors b u t t h e r e are s u f f l c l e n t

funds	i n hand t o pay a dlvidend of about	5.9	cen t s
I n t h e d o l l a r t o c r e d i t o r s	whose	debts	have been

mccarthy	20.4.82	4
ec It l e

admltted t o proof .

The Of f l c l a l Recelver has referred I n h l s

r e p o r t t o c e r t a l n matters whlch he says cannot

be regarded as sa t l s f ac to ry conduc t on thepart

of thebankrupt. I s h a l l deal b r i e f l y u n t h them.

F i r s t , It 1s s a l d t h a t h e t r a n s f e r r e d h l s

I n t e r e s t i n h l s m a t r r m o n l a l home t o h l s wife

af ter t h e p r e s e n t a t l o n of t h e p e t i t l o n on which

t h e s e q u e s t r a t l o n order was made. Thls 1s a fac t ,

but evldence has been glven explaining the

crrcumstances In whlch t h i s came about and I a m

s a t l s f l e d t h a t It does n o t c a s t t h e b a n k r u p t l n t o

an unfavourable l lgh t . H e d lsposed of hls accountancy

p r a c t i c e a l s o af ter t h e p r e s e n t a t l o n of t h e

c red l to r s pe t l t l on . Aga ln a l t hough , I have more

mlsg lv lngs about tha t aspec t of t h e matter, I t h m k

i n a l l the c l rcumstances the bankrupt cannot be

unduly c r l t l c i z e d f o r t h a t act.

For the same reason I do not th lnk he can

be u n d u l y c r l t r c l z e d f o r t h e f ac t t h a t h e farled

t o d l s c l o s e I n h l s s t a t e m e n t o f a f f a l r s a deb t

owed by t h e Yates, t o whlch I have r e fe r r ed earller.

The O f f l c l a l R e c e l v e r s u b m l t s t h a t on the ev ldence ,

t h e m a t t e r s referred t o I n s e c t l o n 150 ( 6 ) (a) and (c )

have been es tabl lshed. I t u r n f i r s t t o p a r a g r a p h

( a ) , namely tha t t he bankrup t has oml t t ed t o keep

and preserve such books, accounts or records as

s u f f l c l e n t t o drsclose h l s b u s l n e s s t r a n s a c t i o n s

and f l n s n c l a l p o s l t l o n v l t h l n t h e p e r i o d of f i v e y e a r s

mccarthy 20.4.82	5
ec It 2e

!

lmmedlately precedlng the date on whlch he

became a bankrupt.

I The bankrupt, as I sald, was a public

accountant. He should have kept and preserved
cash books, creditors ledgers and a cllentvs
debtors ledgerand Indeed he was hlmself engaged

incertaln speculatlve building ventures, and

m respect of those, debtors and creditors ledgers,

costlng books and a general ledger ought to have
been malntalned. It seems that all that was kept
was bank records, although he gave evldence of
tkcompanles lnvolved In the bulldlng ventures

keeplng thelr own records, and indeed of certaln

records belng kept by himself relatlng to some

of hls building actlvltres. In all the clrcumstances,
however, I am satlsfled that paragraph (a) has

been established.

Then It 1s sald that paragraph (c) of sectlon

150(6) 1 s establlshed, namely that the bankrupt

has contracted a debt provable In the bankruptcy

wlthout havlng at the tlme of contractlng it any

reasonable or probable grounds of expectatlon,

proof of whlch lles on hlm, of belng able to pay It

after taklng lnto conslderatlon hls other llabllltles

at the tlme. The essence of thls submlsslon by the

Offlclal Recelver	1s that when the guarantees were
glven by the bankrupt	to support the Indebtedness of
those engaged In the bulldlng actlvltles to which	I

mccarthy 20.4.82	6
ec It 3e

..

have re fer red ,	they	are	the debts rv l th ln	the
meanlng of paragraph	(c ) , and	were	SO	a t t h e

t l m e t hey were con,:;cted, t ha t IS, a C Lhe

t l m e t h e g u a r a n t e s s were g l v e n , t h a t t h e r e vas

no reasonable	or	pr;>able ground	o r e x p e c t a t l o n
o f t he bankrup t ' s be lng	able	t o	honour the

g u a r a n t e e s , a f t e r t a k l n g l n t o a c c o u n t h l s o t h e r

l labll l t les a t t h e tlme. I n my o p l n l o n t h l s

too has been es tab l i shed . The bankrup t , i n

my oplnlon, when he gave hls guarantees , had

no reasonable or probable ground of expec ta t ion

t h a t I f t h e y were c:-led up he would be able t o

honour them. It m u s t be remembered t h a t w l t h a

guarantee ,	It carries wl th It a t a l l tlmes	t h e
p o s s l b i l i t y t h a t t h e p r i n c l p a l d e b t o r	may	d e f a u l t

and the gua ran tee wlll be c a l l e d upon.

Having found t h a t t h o s e m a t t e r s a r e e s t a b l i s h e d ,

It f o l l o w s t h a t I --Innot grant an uncondl t lonal

o r d e r of d lscharge . I must e i t h e r r e f u s e t h e

d lscharge or g r a n t 1~ and suspend Its ope ra t lon ,

e l t h e r conditionally or uncondl t lona l ly . The

bankrupt 1 s now c:.:.:ylng on p rac t l ce o f a management

consul tant and accountant . H e does no t earn very

much money from lt 2nd he has t o pay out of what

he r ece lves	malnte:.-?nce t o h l s v l f e	on account	of
t h e c h l l d r e n .

H e has made only a nomlna l con t r lbu t lon to

h l s	estate	bu t	I	ZTI	sa t i s f i ed tha t he cou ld no t have
done	otherwlse	durlng	hls	bankruptcy.	H e lmpressed

mccarthy 20.4.82	7
ec It 4 e

m e as a bas lca l ly hones t wi tness and one who

Tee15 L h e stigma 01 bankruptcy clrl i i one who

w l s h e s t o b e f r e e o f i t , for a number of reasons ,

i n c l u d i n g t h e	deslre	t o start	aga ln	I n l l f e
and have	a reasonable	income from	which	he, and

presumably h i s c h l l d r e n , wlll i n due course benef l t .

The e v e n t s t h a t led him t o b e made bankrupt

were unfo r tuna te and r eg re t t ab ly a l l t o o common

and essent la l ly because he engaged d l rec t ly or

l n d i r e c t l y I n t h e s p e c u l a t l v e b u i l d l n g v e n t u r e s

t o whlch I refer red , guaranteed debts , and the

.

worst happened. I th lnk the re ough t t o be an

o r d e r f o r d i s c h a r g e b u t t h a t Its ope ra t lon be

suspended, I t h m k f o r o n l y a nominal perlod.

Accordlngly, I make an order f o r d i s c h a r g e b u t

suspend Its o p e r a t i o n u n t l l 2 1 A p r l l 1982.

mccarthy	20.4.82	8
ec It 5e