Re: Frank

[1989] FCA 873

IN THE FEDERAL COURT OF AUSTRALIA )

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SOUTH AUSTRALIA DISTRICT REGISTRY )

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GENERAL DIVISION	)	No. 258 of 1987
BANKRUPTCY DISTRICT OF THE STATE )	)
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OF SOUTH AUSTRALIA	)

Re: JOSEF VICTOR FRANK

l EXTEMPORE REASONS FOR JUDGMENT

CORAM: VON DOUSSA J.
11 JULY 1989

This is an application by the bankrupt seeking an order for discharge from his bankruptcy pursuant to s.150 of the Bankruptcy Act 1966 ("the Act"). The sequestration order was made on 9 March 1987. The acts of bankruptcy were a nil return on a writ of fieri facias, a "no effects" return on a warrant issued out of the District Court and non compliance with a bankruptcy notice. Those acts of bankruptcy occurred within the few months preceding the sequestration order.

for quite some time.

In consequence of the application for discharge, the trustee of the estate, Mr K.M. Pipkin, has filed a report. Reference to that indicates that the. bankrupt, in his statement of affairs, disclosed assets of $1.36,981, being debts allegedly due to him by Mr Hall (a solicitor) and four members of the Piliczky family with whom he had been unsuccess

He also disclosed liabilities from thirteen unsecured creditors totalling $176,122.83. Of that sum, $121,736 was due

by him to his own private company, J.V. Frank Pty Ltd.

The trustee reports that he has accepted no proofs of debts in the estate although it seems clear enough that there must be moneys owing to the Piliczky family in respect of the judgments and orders for costs. The trustee also records that it appears to him that the debts said to be the assets due to the estate "exist only in the imagination of the bankrupt and are not recoverable at law."

The bankrupt is now 69 years of age. He is almost 70.

He has tendered medical reports which indicate that he sustained a serious motor accident in 1981 causing bilateral knee fractures and a crush fracture of the first lumbar vertebra. I intend no disrepect to him if I say that his appearance in these proceedings indicates that he is frail, both physically and mentally.

His principal ground for seeking a discharge is based on

his health. In particular, he desires to be free to move to

Darwin into the warmer weather.	He sees the bankruptcy as some
hindrance to him doing so.

The Piliczky family, through Mr Hall - they being the petitioning creditor or creditors - have opposed the discharge from bankruptcy. Mr Hall prepared a substantial schedule of alleged offences against either the Bankruptcy Act or the

criminal law which the petitioning creditor says the bankrupt has committed. This detailed 28 page document catalogues 40 such alleged offences and a further one allegation of fraud has been made today.

The trustee, in his report, made reference to this schedule saying that it appears that: the bankrupt may have committed offences either against the Ac:t or the criminal law or both. Having regard to that possibilit.~, he then, in paragraph 11, submitted that a number of matters which fall within the ambit of sub.s.150(6) of the Bankruptcy Act may be established against the bankrupt.

When the matter was before the court on 9 June 1989, Mr Pipkin indicated that he did not intend to adduce any evidence in support of the possible matters under sub.s.150(6), and that he had included that aspect of his report only to reflect the anticipated case of the petitioning creditor in opposition to the discharge. Mr Pipkin sought to be released from further

participation in the proceedings.	He summarised the position by
saying :

"I quite frankly cannot see any point in keeping Mr

Frank bankrupt whatever he might have done. I just cannot see the point in prolonging the agony of the whole thing both for himself and myself."

I excused Mr Pipin from further attendance.

Today, Mr Hall continued the history of adtagonism which
has existed between his clients and the bankrupt for some years

by cross-examining the bankrupt with a view to establishing a
number of matters under sub.s.150(6).

Mr Hall contends that under para.(e) of sub.s.150(6) the evidence establishes that the bankrupt has brought on or contributed to his bankruptcy by culpable neglect of his business affairs. Attention was drawn in support of that proposition to

the list of unsecured creditors.	I have already debated this
submission with Mr Hall.	There is no evidence to show how the

overdraft account with Westpac Banking Corporation arose. The debt to Mr Frank's own private company no doubt reflects a lifetime of trading through a private company and I draw no adverse inference from that. Of the other unsecured creditors, some are in respect of recent domestic debts and recent medical treatment. The majority of the balance reflect professional fees no doubt incurred in respect of the unsuccessful litigation which founded the judgments which have led to the bankruptcy. I do not think the allegation advanced under para.(e) is proved by the evidence.

Then it is alleged that the bankrupt was guilty of fraud within para.(h) of sub.s.150(6) and the thrust of that allegation

can be coupled with additional matters raised under paras.(b) and
(C) relating to the obtaining of credit.	In substance, it is

alleged that the bankrupt went to the State Bank of South Australia on about 11 February 1987 and there made representations, the nature of which are not adequately proved but the effect of which was to cause the bank to lend $3,000 to Mr Frank when, it is contended, surrounding events have

induced in the mind of Mr Frank a realisation that he had no prospect of repaying the money. Furthermore, the court is asked to infer that in the surrounding objective facts to which I am about to make reference, Mr Frank must have told a lie about his financial position to the bank to induce it to make a loan.

Those surrounding facts are that a bankruptcy notice was served on 12 December 1986; that a bailiff had attended at Mr Frank's premises on 19 December 1986 when he said he had no assets, inducing thereby a nil return on the warrant, and a similar negative execution of a further warrant on 21 January 1987.

Mr Frank denies the allegations made against him. He

says that he had an expectation of being able to repay the bank and that he told the bank manager of the full position, which included the fact that various people owed him money - namely, those whose indebtedness to him he has disclosed in his statement of affairs - and, more importantly, that he anticipated the receipt of substantial assets through his company.

As best I understand the brief evidence that was given

about that this morning, in 1973 or 1976, through the agency of a land salesman, Mr Frank (or rather his company) entered into a contract with a Mrs Floreani to buy a property at 121 King William Street, Norwood. The contract foundered apparently because Mrs Floreani lived next door to a prominent politician who, Mr Frank believes, brought pressure to bear on him not to go ahead with the contract. It was suggested by Mr Hall in cross-examination that Mrs Floreani had asserted a misrepresentation had been made to her about the value, but perhaps it was also asserted that Mr Frank or the land salesman had acted in breach of a fiduciary duty. Clearly, Mrs Floreani does not intend to go on with the contract but, equally clearly, Mr Frank seems to think he has some entitlement to the asset. He has endeavoured to explain how he wi3s in the process of suing to recover the property through the company at the time that he was sent bankrupt. That disqualified him as a director and apparently his company has taken no further action.

I am not prepared to find that Mr Frank did not, and does not, genuinely believe the truth of that story and of his entitlements to the asset, nor am I prepared to find that he does not believe he was owed money by vario.us other people.

I suspect Mr Frank, even in late 1986, tended to live in a world of fantasy which has since been reflected in the administration of his bankruptcy. I am not prepared to find that he was guilty of fraud within para.l50(6)(h), and with some hesitation I am also not prepared to hold that he knew himself to

be insolvent at the time he obtained credit or that he knew he	had no reasonable grounds to repay the loan. The reality of the
situation is that he did not have any prospect of repaying, but I am not satisfied that he knew that.
In the result, I am not satisfied that any matters are made out under sub.s.150(6).
The application for discharge is made within three years of the sequestration order. The court has a general jurisdiction which permits the making of an order for discharge at this stage. In making that order, I am to have regard not only to the interests of the bankrupt but the interests of the commercial community and the public at large.
I am satisfied that it is in the interests of the bankrupt and his health that he be discharged. I can see no point in continuing the bankruptcy from the point of view of the creditors. There is no realistic prospect of them recovering any money from Mr Frank who, at this stage, is an aged pensioner.

My concern, however, is whether it is appropriate simply to give him a discharge as he expresses some thought of going back into business as a land broker or reviving his company and becoming a director of it. I think the proper course, if there is to be a discharge, is to impose a condition to the effect that he not go into business on his own account or become a company director for a period of time. I propose to impose such a condition as an adjunct to an order temporarily suspending the operation of an order for discharge under sub.s.150(9).

The order of the court is that Mr Frank be discharged from his bankruptcy, that the order of discharge be suspended until 5.00 p.m. on Friday, 14 July 1989 on the condition that Mr

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Frank undertakes, before the court, not to go into business on his own account or to become a director of a company for a period of 12 calendar months from today. Mr Frank, are you prepared to undertake not to do that?

MR FRANK:	Yes, your Honour.
HIS HONOUR:	That is, not to go into business on your own.
MR FRANK:	Yes, your Honour.
HIS HONOUR:	And not to become a director of a company.
MR FRANK:	Yes, your Honour.
HIS HONOUR:	That is, for 12 months from today.
MR FRANK:	Yes, your Honour.

HIS HONOUR: Now, your undertakings are noted and you therefore fulfil that part of the order so your discharge will take effect from 5.00 p.m. this Friday.

MR FRANK:  Thank you, your Honour.

HIS HONOUR: If you break either of those undertakings, if you are in breach of them, you will be liable to be convicted of contempt of court.

MR FRANK:	Yes, your Honour.
HIS HONOUR:	Which can carry a substantial penalty either of a

fine or imprisonment.  1

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MR FRANK:	Yes, your Honour.
HIS HONOUR:	DO you follow that?
MR FRANK:	Yes, your Honour.

HIS HONOUR: Good. Thank you.

MR FRANK:  Thank you.

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HIS HONOUR:  Now, there remains the question of costs.

application for costs has been made by the petitioning creditor

in respect of the opposition to the discharge. The substantive

facts upon which the petitioning creditor has relied have not

been made out and I refuse the order for costs.

I certify that this and

the ' preceding pages are
a true copy of the Reasons
for Judgment of Nr Justice

von Doussa.

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Associate:  ,

A . h h . , r .

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