Re Graham Thomas Milne

[1982] FCA 321

I

GENERAL DIVISION	) NO.	1 2 0 OF 1975
1
BANKRUPTCY DISTRICT OF THE STATE	)
)

OF SOUTH AUSTRALIA )

RE :  GRAHAM THOMAS MILNE

Applicant

REASONS FOR JUDGMENT

AT ADELAIDE 20 APRIL 1 9 8 2

LOCKHART J. This is an a p p l i c a t i o n f o r d i s c h a r g e by Graham Thomas

Milne, who became bankrupt by t h e making of a seques t r a t ion o rde r

on	1 8 Apr i l	1975.	Two	ob jec t ions t o the d i scha rge o f	t he bankrup t
have been lodged	by	t h e O f f i c i a l	Receiver	as t r u s t e e of	t h e estate of

t h e bankrup t pu r suan t t o S . 1 4 9 of the Bankruptcy A c t 1 9 6 6 . The

f i r s t o b j e c t i o n was lodged on 29 June 1976 as a r e s u l t of t h e

b a n k r u p t ' s f a i l u r e t o n o t i f y a change of address. The second

objec t ion was lodged on 25 March 1980 on t h e b a s i s t h a t , " t h e

conduct of the bankrupt has been unsat isfactory".

The r e a l i z a t i o n s from t h e estate to ta l $10,760,53,

r e p r e s e n t i n g i n t h e main t h e p r o c e e d s o f s a l e of t he bus iness

previously conducted bythe bankrupt , including the sale of s tock

and ce r t a in t r ade marks . In add i t ion , some $3,000.30 r ep resen t s

a refund of preferences.

A l a r g e number of c r ed i to r s have p roved the i r deb t s , and

the i r p roofs have been admi t ted in a t o t a l sum of $37,582. In

a d d i t i o n t h e r e	are	two	d e f e r r e d c r e d i t o r s	whose	claims	t o t a l
$ 1 4 , 0 1 2 ,	but	$ 1 4 , 0 0 0	o f t h a t f i g u r e r e p r e s e n t s	a	proof	lodged

by t h e b a n k r u p t ' s w i f e i n r e l a t i o n t o moneys l e n t by h e r t o him. -

. . ./2

Dividends total . l ing 21.47 c e n t s i n t h e d o l l a r h a v e been

p a i d t o creditors whose proofs have been admitted.

I need not set ou t a l l t h e r e l e v a n t f a c t s t h a t relate

t o the bankrupt 's conduct before and during his bankruptcy; they

have been fu l ly canvassed in the ev idence , and are t o a l a r g e e x t e n t

c o n t a i n e d i n t h e O f f i c i a l R e c e i v e r ' s r e p o r t on the bankrup t ' s

app l i ca t ion fo r d i scha rge . I sha l l ment ion only some of them,

b u t it does not follow from my n o t m e n t i o n i p q t h e o t h e r f a c t s t h a t

I have not taken them into considerat ion; I have considered a l l

r e l e v a n t f a c t s .

A t t h e d a t e of his bankruptcy the bankrupt was s e l f -

employed	as p r o p r i e t o r of	a	mens	c lo th ing retail	s h i p i n	Twin
S t r ee t , Ade la ide ,	known	as	La C a s a de Patron.	H e i s now	34	yea r s

of	age,	and	his bankruptcy	arose	p r i m a r i l y b e c a u s e i n h i s e a r l y t o
mid	twent ies he and others	embarked	on	a	f a i r ly ambi t ious p l an
of	r e t a i l c l o t h i n g s t o r e s ,	which	through	inexperience,	under-

cap i t a l i za t ion , pa r tne r sh ip p rob lems and r eces s ion , r e su l t ed in

the bankruptcy. But t h a t was seven years ago.

The business formerly conducted by t h e bankrupt was s o l d

t o h i s w i f e a f t e r h i s b a n k r u y t c y by t h e t r u s t e e of h i s estate.

H e i s c u r r e n t l y employed a s manager of her business, and he earns

about $80.00 per week. I n f a c t , however, t h e b e n e f i t s h e r e c e i v e s

are s u b s t a n t i a l l y i n e x c e s s o f t h a t . H e l i v e s w i t h h i s w i f e a n d two

c h i l d r e n i n a home t h a t is owned by the bankrupt 's wife , though

heavily mortgaged. The i n t e r e s t and capi ta l repayments on t h e

two mortgages come t o a b o u t	$250.00	a week;	t h a t i s pa id out	of	t h e
business conducted	by	the bankrup t ' s w i fe ,	as are water	rates	and

o the r ou tgo ings r e l a t ed t o the p rope r ty .

. . . / 3

The business apparent ly operates two motor vehicles: a

BMW saloon, 1977 model, and a Triumph S tag o f t he same year . I a m

n o t e n t i r e l y clear as t o what t h e i r v a l u e is a t t h e moment, b u t t h e

bankrupt puts a f i g u r e upon them of about $ 9 , 0 0 0 . 0 0 and about

$6 ,000 .00 r e spec t ive ly . The lease payments are subs t an t i a l , and

they too come ou t of t he bus iness . The Of f i c i a l Rece ive r submi t s t ha t

c e r t a i n matters have been establ ished under S. 1 5 0 (6), paragraphs

( a ) , ( b ) , ( c ) and (e) namely:-

" ( a ) t h a t the bankrupt has omit ted t o keep

such books, accounts or records as

s u f f i c i e n t l y d i s c l o s e h i s b u s i n e s s t r ansac t ions and f inanc ia l pos i t i on

w i t h i n t h e p e r i o d of 5 years immediately

p reced ing the da t e upon which he became

a bankrupt; "

I n s h o r t , what t h e O f f i c i a l R e c e i v e r relies on i n t h e e v i d e n c e

is	t h e f a c t t h a t t h e b a n k r u p t k e p t	a	cash	book and wages book, but
t h a t	he had very	l i t t l e ,	i f a n y , c o n t r o l o v e r h i s c r e d i t o r s	or

debtors ; and did not keep a d e b t o r s o r c r e d i t o r s l e d g e r o r a

genera l l edger incorpora t ing a debtors and cred i tors ledger . I am

s a t i s f i e d t h a t p a r a g r a p h ( a ) has been s tabl ished, a l though

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

importance t o it.

Then it i s submitted by t h e O f f i c i a l R e c e i v e r t h a t

paragraph (b) has been establ ished, namely:-

" ( b ) t h a t t h e b a n k r u p t h a s , a f t e r knowing himself

t o b e i n s o l v e n t , c o n t i n u e d t o t r a d e or

o b t a i n e d c r e d i t t o t h e amount of $100 or

upwards ; "

The m a t t e r s r e l i e d upon to suppor t t ha t submiss ion

are, i n b r i e f , t h a t a t t h e t i m e when t h e b a n k r u p t ' s f i n a n c i a l

problems reached	a cr i t ical p o i n t ,	namely about March	1973, he
c o n t i n u e d t o t r a d e , t o i n c u r d e b t s , a n d	t o	obta in c red i t ,	well

. . . / 4

over $100 i n amount, and t h a t h e knew himsel f to be inso lvent .

I a m s a t i s f i e d t h a t from about March-April 1973 onwards, the bankrupt

must have	known	t h a t h i s f i n a n c i a l p o s i t i o n	was	precar ious , a l though
no doubt he hoped	tha t someth ing	would happen	t o ease	t h e p o s i t i o n

and restore	l i q u i d i t y .	But	i n a l l the c i rcumstances	I	a m s a t i s f i e d
t h a t t h e a l l e g a t i o n i n p a r a g r a p h ( b )	has	a l s o	been	made	out .

The t h i r d m a t t e r r e l i e d on i s paragraph (c ) of S. 150 (61,

namely :  -

" (c ) t h a t t h e b a n k r u p t has cont rac ted a debt

provable in the bankruptcy wi thout having

a t t h e time o f con t r ac t ing it any reasonable

or	probable	grounds of	expectat	ion (proof
of which	l ies on him)	of	b e m g a b l e t o	pay it

a f t e r t a k i n g i n t o c o n s i d e r a t i o n h i s o t h e r

l i a b i l i t i e s a t t h e time;"

The O f f i c i a l Receiver s u b m i t t e d t h a t t h e cost o f c e r t a i n

b u i l d l n g a l t e r a t i o n s t o premises i n Rundle S t r ee t , Ade la ide which

were c a r r i e d o u t i n la te 1 9 7 2 amounting t o some $ 2 0 , 0 0 0 , p r i o r t o

the shop opening for bus iness under the name of La Casa de Patron,

was a debt incur red by t h e b a n k r u p t f a l l i n g w i t h i n t h e d e s c r i p t i o n

of ( c ) .

The O f f i c i a l Receiver a lso submi t t ed tha t an account

outs tanding a t t h e d a t e of bankruptcy under a lease between

Benef ic ia l F inance Corpora t ion Limi ted , the bankrupt and a former

partner, Frank Paul Sincock, was a debt incur red by the bankrupt

f a l l i n g w i t h i n t h e d e s c r i p t i o n of ( c ) . I a m s a t i s f i e d t h a t t hese

and o ther debts	of	which evidence	has been given establ ish paragraph
( C ) .

Then it i s submitted by t h e O f f i c i a l Receiver under

paragraph ( e 1 : -

" ( e ) tha t the bankrupt has b rought on , or

cont r ibu ted to , h i s bankruptcy by -...

. . ./5

(ii) u n j u s t i f i a b l e e x t r a v a g a n c e i n l i v i n g ; ..."

What i s r e l i e d upon i s t h e f a c t t h a t t h e b a n k r u p t had

t r a d e d i n a n MGB motor vehic le and leased a Mercedes Benz motor

veh ic l e a t a leas ing charge of $110.50 p e r month, and t h a t i n May

of 1973 he had leased a Jaguar X J 6 from Beneficial Finance

Corpora t ion L imi t ed fo r t h ree yea r s a t a charge of $195.30 per month.

It is n o t e n t i r e l y clear t o m e from the evidence whether

or no t it can be sa id , when t h e vehicles were u l t i m a t e l y r e a l i z e d ,

v7as sus t a ined ,

t h a t a loss or p r o f i t b u t I a m of t h e view t h a t i f t h i s s u b m i s s i o n

i s made good it relates no t so much t o a n y l o s s e s t h a t may have been

sus t a ined upon t h e sale of t h e v e h i c l e s so much as the h igh

c o n t r i b u t i o n t h a t h a d t o b e made by way of leasing charges because

of t h e n a t u r e of t h e v e h i c l e s .

Although I have some misgivings as to whether or n o t t h e

bankrupt has brought on his bankruptcy by h i s ac t iv i t ies i n r e l a t i o n

t o t h o s e motor vehicles , I am s a t i s f i e d t h a t h e c o n t r i b u t e d t o it by

l e a s i n g t h e v e h i c l e s h e d i d , a n d t h a t t h i s c o n s t i t u t e s a n u n j u s t i f i a b l e

ex t r avagance in l i v ing cond i t ions . I am t h e r e f o r e s a t i s f i e d t h a t t h e

above matters h a v e b e e n e s t a b l i s h e d i n t h e case.

It follov7s t h a t t h e C o u r t s h a l l r e f u s e t o make an order

for d i scharge , or make one but suspend i t s o p e r a t i o n , e i t h e r

uncondi t ional ly or s u b j e c t t o c o n d i t i o n s , and it is the ques t ion of

the suspension of operat ion	of	the o rde r and the impos i t i on	of
cond i t ions tha t cause	m e	most	t r o u b l e i n t h i s c a s e .

The bankrupt has not made c o n t r i b u t i o n s t o h i s estate. H e

has painted a p i c t u r e i n t h e w i t n e s s box of a man who has a w l f e

and two young ch i ldren , earn ing a very small sum of money, having

t h e b e n e f i t however of moneys from the bus iness in keeping the fami ly

i n t h e way I have already mentioned.

. . ./6

The bankrupt has spent mcz= of h i s working l i f e i n t h e

re ta i l c lo th ing t r ade , and he worr;s f o r h i s wife i n h e r b u s i n e s s ,

and although he receives only a small weekly remuneration, his

bene f i t s f rom the bus iness are i n f a c t s u b s t a n t i a l l y g r e a t e r . I

h a v e r e f e r r e d t o them a l r eady and need not repeat them.

I am s a t i s f i e d t h a t h e i s i n r e a l i t y t h e m a i n s t a y o f t h e

business. Although his	wife	is	no doubt	an	important	contr ibutor
t o t h e b u s i n e s s a c t i v i t i e s ,	I	t h i n k h e	is	the pe r son	who	r e a l l y

a t t e n d s t o many	of	t h e p o l i c y	dec:;lons	t h a t are made	i n t h e
business .

The moneys der ived by the Sus iness have been used in pa r t

t o b u i l d it up i n v a r i o u s ways, and a l s o t o enab le the pu rchase of

assets by the bankrup t ' s w i fe e i the r he r se l f o r t h rough the

instrument of companies o r poss ib ly t ru s t s . Fo r example , $ 2 5 , 0 0 0

was taken from the business by t. - bankrupt ' s wi fe t o enable cash t o

be cont r ibu ted t o the pu rchase of xhe business premises known as 28

Twin Street, Adelaide, a property whlch w a s subsequent ly acquired by

Daymar Pty. L i m i t e d , the directe?.rs of which are the bankrup t ' s

wife	and	t h e	bankrupt 's	motber-x::-law.	The	o r i g i n a l p u r c h a s e p r i c e
i n J u n e	1978 vas	$180 ,900 .	The	s h a r e s i n t h a t	company	have	recent ly

been sold and it i s e x p e c t e d t h a t the n e t moneys which w i l l be

derived from the sale o f t h o s e s h x e s by thebankrup t ' s wife and h i s

mother-in-law w i l l . be something I-, t h e order of $75,000 t o $80 ,000 .

There i s e v i d e n c e t h a t t h e b a n k r u p t ' s w i f e will n o t make any

c o n t r i b u t i o n s h e r s e l f t o h i s b a n k r u p t c y t o assist t h e c r e d i t o r s A

number of reasons have been giver? for that . Of course , she i s under

no ob l iga t ion to do th i s bu t pe rkaps the mos t t e l l i ng r eason wh ich

has been given	i s t h a t t h e	bus!:	.ss	t h a t s h e	now	ope ra t e s i s one
which i t s e l f h a s	some $70,000	GT	f	c r e d i t o r s who	need	t o be paid.

The moneys t h a t w i l l come o u t of sale of t h e s h a r e s i n Daymar

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

bankrup t ' s ch i ld ren to d i scha rge d e b t s o f t h e w i f e ' s c r e d i t o r s .

Money owed t o c r e d i t o r s W:. S debts have been proved are no t

s u b s t a n t i a l , b u t I a m n o t satisf: :hat the bankrupt could not have

made	some	e f f o r t o v e r t h e p a s t	se	years himself	t o p u t money	i n t o
t h e estate	f o r t h e b e n e f i t	of hi;	-ditors.	I am	s a t i s f i e d	t h a t
o u t of	h i s own	income a t t h e morn	S	could not	make	any cont r ibu t ion

t o h i s	c r e d i t o r s .	I n	a n y	e v e n t ,	x l d n o t impose any condition
r e l a t i n g t o suspension of the	ox	:)f	d i s c h a r g e t h a t	would	r e q u i r e

him t o make payments from h i s i n c - because of t i e provis ions of

S. 1 5 0 (7).

However, I am s a t i s f i e s L t h e r e are business assets which

have enabled the bankrupt ' s wir- b u i l d up c e r t a i n assets, t h e

b e n e f i t of which passes through : a : t l y and ind i r ec t ly to the

bankrupt.	The p r l c e	f o r a n e a r l y	;charge	of	the bankrupt	w i l l be
t h e making of	some	con t r ibu t ion	'gh	n o t a	s u b s t a n t i a l sum,	t o

h i s c r e d i t o r s .

I have a l r eady sa id the k x p t has been bankrupt for

seven years. H e i s 3 4 , marr ied two sons , 9 and 7 years of age.

P la in ly , h i s bankruptcy has sou;- LS outlook on l i f e a l i t t l e . H e

is, I t h i n k , e n t i t l e d now t o be ? of h i s bankrup tcy sub jec t t o

t h e c o n d i t i o n and suspension I sh,- mention i n a moment, so t h a t

h e c a n s t a r t l i f e a f r e s h , f r e e G: 3 stigma. However, I t h n k t h e

prope r o rde r t o make is t h a t t ? 2 zn order of discharge, but

t h a t it be suspended for a p e r l c six months on t h e c o n d i t i o n t h a t ,

i n the meantime, i f $5,000.00 1- 1 t o t h e t r u s t e e of h i s estate

. . ./8

f o r t h e b e n e f i t o f h i s c r e d i t o r s , t h e o r d e r o f d i s c h a r g e will

opera t e from t h e d a t e of t h a t payment. The bankrupt may t a k e

t h e view t h a t , i n t h e l i g h t of t h a t , p l a i n l y h e will w a i t f o r

s i x months and n o t o r g a n i z e f u n d s t o e n s u r e t h a t t h e $5 ,000 .00 i s

paid. However, i f i n t r u t h t h e f u n d s a r e t h e r e - and I am

s a t i s f i e d t h a t t h e y a r e - he may well consider, even a t t h i s

s t a g e o f t h e m a t t e r , t h a t t h e p r o p e r t h i n g t o d o	i s	t o make	t h a t
c o n t r i b u t i o n t o h i s e s t a t e .

Accordingly, I make an order of discharge but suspend i ts

o p e r a t i o n f o r a pe r iod o f s ix months from today on condition that,

i n t h e	meantime,	i f t h e	sum	of	$5 ,000 .00	i s p a i d t o t h e t r u s t e e
of	h i s	estate	f o r t h e b e n e f i t	of	h i s c r e d i t o r s , t h e o r d e r	of

d i scha rge sha l l ope ra t e	from	t h e d a t e o f t h a t	payment.
i