Re Harding, Phillip Hassett

[1981] FCA 206

Re: PHILLIP HASSETT HARDING (1981) 57 FLR 320
No. 64 of 1977
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Lockhart J.(1)

CATCHWORDS

Bankruptcy - application for discharge - whether bankrupt's wife or companies controlled by her held real estate upon trust for the bankrupt - whether bankrupt in fact received benefits substantially in excess of his stated salary and allowances - matters to be considered in determining an application for discharge - whether contention of fraud established.

Bankruptcy Act 1966 s. 150

Bankruptcy - Application for discharge - Matters to be considered when determining application for discharge - Whether wife of bankrupt held real estate upon trust for bankrupt - Whether bankrupt received benefits in excess of stated income and allowances - Whether fraud established - Bankruptcy Act 1966 (Cth), s. 150.

HEADNOTE

The bankrupt presented his own petition on 16th February, 1977. The bankrupt's creditors lodged proofs of debt which were admitted to rank for dividend which exceeded $1,048,000. The bankrupt disclosed net available assets of $3,109 and made contributions totalling $1,380 to his estate.

The bankrupt sought an order for discharge pursuant to s. 150 of the Bankruptcy Act 1966. The official trustee objected to the discharge on the ground that the bankrupt had a deficiency in excess of $100,000. Four proved creditors also opposed that discharge on various grounds set out in the judgment; the essential objection relied upon was that the bankrupt in fact received more benefits than were disclosed by his income and failed to contribute to his estate in a reasonable and genuine attempt to repay his creditors.

The bankrupt was employed as a managing law clerk for a firm of solicitors. From late 1979 he was employed by a service company of the firm of solicitors. He received a salary of $175 per week and a travelling and entertainment allowance of fifty dollars per week. That service company conferred many other substantial benefits upon the bankrupt, his wife and family, such that the objectors contended that he received benefits of about $40,000 per annum. The objectors further contended that the bankrupt could earn about $25,000 per annum plus the use of a car in similar employment.

Held: (1) There was no sufficient evidence to support the contention that the bankrupt's wife held property upon trust for the bankrupt.

(2) The bankrupt received benefits and allowances substantially in excess of his stated salary and allowances.

(3) The bankrupt could probably find employment in a similar capacity to his present job earning $20,000 per annum plus use of a car.

(4) In considering the application for discharge regard must be had not only to the interests of the bankrupt and his creditors but also to the public and to commercial morality. In the exercise of its discretion the court must also consider the conduct of the bankrupt relative to his bankruptcy.

Re Prince; Ex parte The Bankrupt (1961), 19 ABC 39; Re Gray (1960), 19 ABC 29; Re Mallan (1975), 25 FLR 20; Re Reilly (1979), 36 FLR 268; Re Weiss; Ex parte The Bankrupt, unreported (Federal Court of Australia, McGregor J., 3rd September, 1980); Re Kolomy (1981), 56 FLR 157, referred to.

(5) (a) The possibility of an application pursuant to s. 131 of the Act in the light of the facts as to the value of benefits received by the bankrupt was a matter for consideration in determining whether to order a discharge. (b) The size of the deficiency in the estate was not, per se, a ground for refusal of discharge; it was one factor to be weighed only. (c) Evidence was produced to the court which might, if investigated further, show that the bankrupt had forged signatures upon mortgage and other documents. The authorities should be afforded a period of time to investigate these matters before any order for discharge is made.

In the circumstances the application for discharge should be refused.

(6) As to costs, as much of the time of the application was involved in cross-examination of the bankrupt and his witnesses on matters which the objectors failed to establish, the bankrupt should pay one-third of the costs of the active respondents.

Orders accordingly.

HEARING

Sydney, 1981, October 26-30; November 2, 5-6. #DATE 6:11:1981

APPLICATION.

Application pursuant to s. 150 of the Act for a discharge.

The facts are set out in the judgment below.

W. Hodgekiss, for the applicant.

P. Graham, for the respondents, W. R. Carpenter Australia Ltd., Mr. Shaw and the official trustee.

G. Noe (solicitor), for Eve Mavis Harman.

Solicitors for the applicant: James Deane & Co.

Solicitors for the respondents W. R. Carpenter Australia Ltd., Mr. Shaw and the official trustee: Clayton Utz & Co.

D. LEVIN

ORDER

1. The application for discharge be refused.

2. The bankrupt pay one-third of the costs of the Official Receiver, of Carpenters and of Mr. Shaw of this application including reserved costs;

3. No subsequent application for discharge should be made until these costs are paid;

4. Liberty to apply generally on seven days' notice be reserved including liberty to any interested person to apply in relation to costs of complying with any subpoenas.

JUDGE1

I propose to give judgment now; though I am conscious that in so doing I may do less than justice to the submissions of counsel. However, the case has lasted more than six days and I have had the benefit of full and careful submissions of counsel.

Phillip Hassett Harding ("the bankrupt") was made bankrupt on presentation of his own petition on 16 February 1977.

The Official Trustee, as trustee of the estate of the bankrupt lodged an objection to the discharge of the bankrupt from his bankruptcy by force of s. 149 of the Bankruptcy Act 1966 on the ground that the bankrupt had a deficiency in excess of $100,000.00.

Another objection to the bankrupt's discharge was lodged by W. R. Carpenter Australia Limited ("Carpenters"), a creditor of the bankrupt, whose debt has been admitted to proof in the sum of $1,024,137.00.

Neither objection has been withdrawn.

The bankrupt seeks an order of discharge from his bankruptcy pursuant to s. 150. The application is opposed by the Official Trustee, Carpenters and three other proved creditors - Robert Fitzgerald Shaw, Eve Mavis Harman and Phillips Kitchen & Co., Stock and Share Brokers. The Official Trustee, Carpenters and Mr. Shaw (I shall refer to them together as "the objectors"), were represented by the same solicitor and counsel on the hearing of the application for discharge and were, apart from the bankrupt himself, the principal protagonists. Mrs. Harman and Phillips Kitchen & Co. played no active role before me.

The bankrupt disclosed assets in his statement of affairs which he said had a value, after his assessment of moneys owing under mortgages over real estate, of $3,109.00.

Twelve proofs of debt have been lodged and admitted to rank for dividend. Six of the proofs are for liabilities incurred by the bankrupt personally as principal debtor in the total sum of $23,980.00. Six proofs are for liabilities under guarantees of the bankrupt of debts incurred by various companies totalling $1,024,137.00 of which five creditors account for $59,501.00. The major claim is by Carpenters.

The bankrupt has made the following contributions to his estate:-

1977 - $310.00 (sale of assets)
1978 - $570.00 (cash from income)
1979 - $300.00 (cash from income)
1980 - $200.00 (cash from income)

_______ $1380.00 ________

The Official Trustee reports that, in his opinion, the conduct of the bankrupt during his bankruptcy has been satisfactory. He does not report any matters pursuant to s. 150 (6) of the Act.

The principal grounds of opposition to the application for discharge relied on by Carpenters and Mr. Shaw may be summarised as follows:-

A. (i) that the bankrupt has been in regular employment since the date of his bankruptcy;

(ii) that he has, since the date of his bankruptcy, had the capacity to earn a higher income than he has in fact earned and has failed to exploit that capacity;

(iii) that he has, since the date of his bankruptcy, so conducted and arranged his business and affairs as to

(a) produce income for others who were prepared to share the fruits thereof with the bankrupt;

(b) divert income which he might have earned into the hands of others who were prepared to share the fruits thereof with the bankrupt;

(c) minimise the income which he earned.

(iv) that this conduct of the bankrupt was intended by him to avoid the possibility of an order being made against him under s. 131 of the Act and with a view to defeating his creditors and avoiding the possibility of making any contribution to his estate;

(v) that in these circumstances the bankrupt has made no, or no reasonable, contribution to his estate or has made no, or no genuine, attempt to repay his creditors;

B. (i) that since his bankruptcy the bankrupt has enjoyed a highly extravagant standard of living;

(ii) that he is able to afford this standard of living because he has chosen to make no, or no substantial, contribution to his estate and has conducted and arranged his business and affairs in the manner mentioned earlier;

C. that the bankrupt contracted debts provable in his bankruptcy without having, at the time of contracting them, any reasonable or probable grounds of expectation of being able to pay them, after taking into account his other liabilities at the time. I should say at once that this objection was not pursued at the hearing.

The bankrupt was engaged by Messrs. H. Hamilton Moore & Co., solicitors of Sydney in late 1977 as their managing law clerk. The principal of the firm was Mr. Geoffrey Hamilton Moore; but he transferred his interest in the firm to Mr. K. C. Foreman in January 1979. Mr. Foreman was introduced to Mr. Geoffrey Hamilton Moore by the bankrupt. Mr. Foreman was assisted in obtaining funds to purchase Mr. Hamilton Moore's interest in the firm by a loan of $10,000.00 from Mrs. Harding and a loan of another $10,000.00 from two of the companies in which Mr. Harding has an interest. I shall for convenience refer to those companies together as "Mrs. Harding's companies". Mrs. Harding also guaranteed payment of some $10,000.00 by Mr. Foreman to Mr. Hamilton Moore and one Edith Croaker.

A service company of H. Hamilton-Moore & Co. was incorporated in November 1979. Mr. Foreman and Mr. R. M. L. Jones, an accountant and a friend of the bankrupt, are its shareholders and directors. The company is HHM Services Pty. Limited ("HHM Services") which employs the staff who do the firm's legal work and owns the furniture and office equipment. The bankrupt is the office manager and he is an authorised signatory on the cheque accounts of both the firm and HHM Services although not, of course, the firm's trust account. He receives a salary of $175.00 per week and a travelling and entertainment allowance of $50.00 per week. However, this is only part of the story because in fact HHM Services confers substantial benefits on the bankrupt, Mrs. Harding and their family in various forms including air fares for interstate holidays, motor car running expenses, frequent lunches at restaurants and payments of cash to Mrs. Harding's companies described by the bankrupt incorrectly as "secretarial expenses" or "travelling expenses". Until very recently, the bankrupt enjoyed the use of a Volvo motor car which was owned by a company Cameron Hughes Pty. Limited, controlled by Mr. Foreman.

In view of the contention of the objectors that Mrs. Harding holds certain real estate and her shares in various companies, and that those companies hold their real estate, all upon trust for the bankrupt, it is necessary to refer to some of the property transactions of Mrs. Harding and of those companies.

In April 1979 Mrs. Harding completed the purchase of a house, No. 2 Broughton Street, Paddington in which she, the bankrupt and their two children live. In November 1980, Mrs. Harding completed the purchase of a house at Noosa Heads, Queensland for $140,000.00. It is close to the beach and has some views of the ocean. It is a three storeyed house built of brick and timber. There is a swimming pool on the land. The property is worth substantially more than $140,000.00.

Anidoa Pty. Limited was incorporated in December 1972. Mrs. Harding holds 3,000 of the 8,000 issued shares and is a director.

In June 1978 Anidoa purchased a home unit in a building "Parkside", Park Avenue, Mosman for $71,000.00. It was sold in March 1979 for $108,000.00.

In November 1976 Anidoa bought a property, 8 Bates Avenue, Paddington for $52,000.00. Later it was subdivided into four strata titles and each was sold between March and December 1978 for figures varying from $26,400.00 to $28,000.00.

In November 1976 Anidoa agreed to purchase properties with old system title known as 212-220 Palmer Street, and 13-19 Palmer Lane, East Sydney, for a total sum of $118,500.00. The vendor was obliged to bring the title to the properties under the Real Property Act; which he did, and settlement took place in September 1978. Some of the these properties were sold. 220 Palmer Street and 13-19 Palmer Lane are still held.

In December 1979 Anidoa acquired eight blocks of land at Campbell Road, St. Peters for $120,000.00. Anidoa also acquired a property known as 82 Fitzroy Street, Surry Hills.

Fameto Pty. Limited was incorporated in June 1975. Mrs. Harding holds 2,001 of the 2,002 shares in its capital and she is a director.

In December 1975 Fameto acquired 56, 58 and 62 Denison Street, Camperdown from ZAP Homes Pty. Limited, the bankrupt being a director of the latter company. 56 Denison Street was sold in April 1979.

In September 1979, Fameto acquired a home unit known as Unit 1B, "Selsdon", 16 Macleay Street, Potts Point for $40,000.00.

In November 1979 Fameto acquired a home unit known as Unit 19, "Manar", 42 Macleay Street, Potts Point.

In June 1980, Fameto acquired 168 Union Street, Newtown. Fameto also owns another property at Newtown known as 12 Fulham Avenue, Newtown.

Goodge Street Investments Pty. Limited was incorporated in 1976. Its issued capital is 200 shares. Hassett Harding Pty. Limited holds 60 of the shares, and Fameto holds 60 shares. Fameto is one of the three directors of the company.

In October 1978 Fameto bought 11 home units at 52 Lamrock Avenue, Bondi. Between April and October 1979, six of the units were sold for a total sum of $152,000.00.

In February 1980 Goodge Street Investments agreed to buy four semi-detached houses Nos. 371-377 South Dowling Street, Sydney for $93,000.00, and in May 1980 agreed to sell them for $118,000.00. The sale was completed in July 1980.

In December 1980 Goodge Street Investments agreed to purchase from Mirvac Pty. Limited a home unit in a building in the course of construction known as No. 5 York Street, Sydney for $139,000.00.

Tangan Pty. Limited was incorporated in February 1980. Mrs. Harding owns the two shares in its issued capital and is one of the two directors. Mr. Jones is the other director.

In April 1981 Tangan bought land at Hawkes Nest, New South Wales for $132,000.00. There is some evidence that it may have a market value of about $270,000.00.

Gosong Pty. Limited was incorporated in June 1980. It is in effect a joint venture between a Mr. Jordan, a Mr. Sinclair and Fameto. Mrs. Harding is one of the three directors, the other two are Mr. Jordan and Mr. Sinclair.

In November 1980, Gosong executed a lease of a property in Bayswater Road, Kings Cross known as the Australian Heritage Hotel, and the licence was transferred from the former licensee to Mr. Jordan who holds it on behalf of Gosong. Gosong operates the hotel. In April 1981 Gosong bought the hotel.

Attunga Heights Pty. Limited was incorporated in April 1977 in Queensland. Fameto holds one of the three issued shares in its capital and is one of its two directors. There is little evidence about this company's activities.

Hassett Harding Pty. Limited was incorporated in February 1974. The bankrupt was, prior to his bankruptcy, a shareholder and director; but he transferred his share to a Mr. J.D. Morris in 1974 and resigned as a director in about 1976. There are two issued shares in its capital and they are held by Mr. Morris and Mr. Jones. The company acts as trustee of the bankrupt's 1974 family trust. The three beneficiaries are said to be Mrs. Harding and the two Harding children. It seems that the trust has no assets which is just as well as the trust deed constituting the trust cannot be found and no copies of it exist.

All the purchases which I have mentioned were financed from various sources including finance companies who took mortgages to secure the advances.

The objectors contend that Mrs. Harding's companies and Mrs. Harding herself hold this real estate, and that Mrs. Harding holds her shares in those companies upon trust for the bankrupt and therefore for his estate. The argument is put on the basis of an express or implied trust and alternatively as a constructive trust.

The objectors assert that the bankrupt knew that his financial position was precarious by mid 1974, set about buying properties in the names of Mrs. Harding's companies during the real estate slump, organised the finance and insurances, attended to the necessary legal work himself or by directing others at H. Hamilton Moore & Co., arranged for valuations where necessary and superintended the renovation work.

The bankrupt sometimes had the custody of cheque books of some of Mrs. Harding's companies including Fameto and Anidoa in the offices of H. Hamilton Moore & Co. Cheques drawn on the accounts of Mrs. Harding's companies were signed from time to time in blank by Mrs. Harding and in some cases by her and Mr. Jones on the assumption that they would be completed by the bankrupt.

The bankrupt collects mail addressed to Mrs. Harding's companies at box numbers and the Potts Point Post Office.

The objectors point to the fact that the listed subscriber to the telephone service for the house at Noosa Heads is the bankrupt, not Mrs. Harding although the house is registered in her name.

When the home unit at 5 York Street, Sydney was acquired from Mirvac Pty. Limited the bankrupt gave the buyer's name initially as Fameto and his own name as the representative of Fameto. He also gave Fameto's address as his business address. He later notified the change of the name of the buyer to Goodge Street Investments.

These are some of the matters relied on by the objectors in support of their contention that the bankrupt masterminded a scheme to build up his own assets in the names of others and to defeat his creditors.

The bankrupt devoted most of his working time between 1971 and at least 1974 to the affairs of the ZAP group of companies which bought, sold and developed real estate. The principal company in the group was ZAP Finance Pty. Limited ("ZAP"). When ZAP defaulted in mid 1974 in payment of interest to Carpenters the bankrupt asked Carpenters to capitalise the interest. The request was refused. The bankrupt admitted in the witness box that the ZAP group had liquidity problems by late 1974. By then the property slump was well advanced. The bankrupt knew, or must have known, not later than mid 1974 that ZAP was in serious financial difficulties. Perhaps he thought that Carpenters would realise the properties rationally over a substantial period of time and that he would not be made bankrupt; but his own immense commitments to Carpenters must have made him realise that if he was to obtain any benefits from real estate transactions in the future, this could not be achieved by purchases and sales in his own name.

It is true that the bankrupt played a major role in organising purchases and sales, development of properties, obtaining finance, arranging insurance and valuations, superintending building works and so on. I am not satisfied that he regarded those properties as his own.

Mrs. Harding gave evidence that during 1974 she decided to invest her savings in real estate and then embarked upon a number of transactions over the ensuing years because she was interested in real estate and wished to increase her assets and their value. She played an active role in the selection of various parcels of real estate for purchase. She is assisted in her real estate activities by the bankrupt and also by other persons including Mr. R. W. Mitchell. The funds used to purchase some of the properties, apart from advances by way of mortgage from third parties, were contributed by herself in some instances and by herself and Mr. Mitchell in others. There is no evidence that any of the bankrupt's funds were used for this purchase. Mrs. Harding herself renovated and furnished or supervised the renovation and furnishing of a number of the properties purchased by Mrs. Harding's companies and by herself. She took advice from various people, in particular Mr. Mitchell, from time to time about the purchase and sale of properties; but she made her own decisions. She instructed her solicitors to acquire a shelf company for the purpose of purchasing the properties 56, 58 and 62 Denison Street, Camperdown. Fameto was selected. It was she who asked some of the persons who hold shares in her companies to become shareholders including Mr. Cruickshank.

She approached a number of persons to see if they would be interested in joining with Anidoa in a joint venture relating to the Palmer Street and Palmer Lane East Sydney properties or in acquiring an interest in Anidoa. She discussed the matter with Mr. J. D. Morris who is a friend of hers and a real estate agent, and he agreed to participate in Anidoa with her. A Mr. B. White was also approached and he agreed to act as trustee for 3,000 shares in Anidoa, being one half of Mrs. Harding's interest in Anidoa.

The home in which the bankrupt and Mrs. Harding live with their children, No. 2 Broughton Street, Paddington was purchased by Mrs. Harding despite protests from the bankrupt as to the wisdom of the investment. She arranged the finance to enable the home to be purchased from three sources: a Building Society, a Mr. S. M. Gazal who holds Mrs. Harding's power of attorney and her uncle, a Mr. Von Takach. She supervised and carried out renovations to the home at Paddington and personally attended to supervision of sub-contractors engaged on the work.

In May 1981 she carried out renovations to the garage of the Paddington home. The renovations were paid out of money received from her insurance company following damage to the garage. The insurance company allowed the claim in the sum of $3,000.00.

Mrs. Harding attended an auction sale and purchased unit 1B, in "Selsdon" 19 Macleay Street, Potts Point. She became aware of it through friends of hers. It was also she who arranged for Fameto to buy unit 19 "Manar" 42 Macleay Street, Potts Point.

Mrs. Harding was cross-examined at considerable length. She is obviously a capable business woman and of independent mind. I formed the firm view that she is a truthful and reliable witness.

The bankrupt denied that any of the real estate held by Mrs. Harding's companies or by Mrs. Harding herself were held upon trust for him. I see no reason to reject his denial.

Although certain of the objective facts and circumstances which I have mentioned earlier may provide some evidence pointing in the direction of a trust, they are, nevertheless, equivocal and, when taken as a whole, in my opinion do not support the existence of a trust.

I find therefore that no express or implied trust has been established. In view of my findings, including my acceptance of Mrs. Harding as a witness of truth, there can be no room for finding that a constructive trust is established.

It was then contended by the objectors that the bankrupt in fact receives remuneration, benefits and allowances from HHM Services, Mrs. Harding's companies and Mrs. Harding herself, substantially in excess of the $175.00 salary and $50.00 entertainment and travelling allowance paid to him by HHM Services. It was suggested that when all these matters were taken into account the bankrupt in fact received benefits of about $40,000.00 per annum. The objectors contend that the bankrupt deliberately structured this situation for the purpose of avoiding personal income tax and preventing the success of any application under s. 131 of the Act for an order that he contribute income to his estate for the benefit of his creditors.

I am satisfied that the bankrupt enjoys benefits and allowances substantially in excess of the weekly $175.00 salary and $50.00 entertainment and travelling allowance paid to him by HHM Services. Until very recently he had the use of the car owned by Cameron Hughes Pty. Limited (Mr. Foreman's company). Much of the expense of operating the car was paid for by HHM Services. One of Mrs. Harding's companies previously provided the bankrupt with a parking space at a city parking station. Mr. Harding ceased to use this and then proceded to park his car illegally in O'Connell Street near to his office, necessarily incurring regular parking fines. As the vehicle was owned by Cameron Hughes Pty. Limited it was liable for the fines, but never paid them.

The bankrupt is a member of a number of clubs: Sydney Turf Club, Mosman Rowing Club and Newtown Businessmen's Club. The subscriptions to these clubs are paid by Mrs. Harding's companies or by Mrs. Harding herself.

HHM Services pays the bills for the telephone in the house at Broughton Street, Paddington.

The bankrupt arranges for wine and other liquor to be purchased for his own and his wife's consumption and as gifts to others. It is paid for by Mrs. Harding's companies. For example, on one occasion Moore Park Cellars sold over $600.00 worth of liquor to one of Mrs. Harding's companies. Some of this liquor was consumed at the Harding home, and the balance was given to friends and to persons likely to confer favours on the bankrupt or on one of Mrs. Harding's companies, the gifts being delivered by the bankrupt himself in some instances.

The bankrupt regularly entertains others and is himself entertained at restaurants, sometimes for dinner, but usually at luncheon, often at Sydney's better known and more expensive restaurants. These are generally paid for by HHM Services or Mrs. Harding's companies.

The bankrupt travels not infrequently to Noosa Heads where he stays in Mrs. Harding's home. For example, he has travelled four times by air to Noosa Heads since the middle of December 1980 and on each occasion the air fares have been paid by others, generally HHM Services or Mrs. Harding's companies. He has travelled twice to Hong Kong, once in 1979 for two weeks on his honeymoon and again in November 1979. The fares and expenses were borne by Mrs. Harding's companies. Other trips have been made interstate by the bankrupt from time to time, again at the expense of Mrs. Harding's companies or HHM Services.

Newspapers are provided for the enjoyment of the bankrupt at the expense of HHM Services or Mrs. Harding's companies.

I do not find it necessary to attempt to express the benefits enjoyed by the bankrupt which are paid for by HHM Services or Mrs. Harding's companies or Mrs. Harding herself as a precise figure. Indeed, I think that it would be an almost impossible task. Any assessment would have to be somewhat broad and arbitrary. Plainly the bankrupt enjoys a very comfortable existence, substantially due to payments made for his benefit by HHM Services and Mrs. Harding's companies. If it were possible to measure the extent of this benefit in monetary terms, it would be substantially in excess of $175.00 per week and a weekly travelling and entertainment allowance of $50.00.

The objectors contend that, notwithstanding the difficulty of expressing the remuneration, benefits and allowances enjoyed by the bankrupt in precise monetary terms, the bankrupt could earn remuneration for the kind of work he does of about $25,000.00 per annum plus the use of a motor car.

Mr. D. H. Simpson, a director of Peat, Marwick Mitchell Services who is involved in "General Management Marketing and Placement of Personnel" with experience of some 18 years in this field, gave evidence that a property development manager of a company involved in real estate development - locating properties, organising finance for their purchase, arranging for their renovation and development and generally being involved in the daily management of the properties - could expect to receive a salary of about $25,000.00 per annum plus the use of a car.

Evidence was given by Mrs. Rubin, a lady of considerable experience in the field of Management Consulting and placing people for employment, that managing law clerks in Sydney with about eight to ten years experience as law clerks and not necessarily being graduates in law were in considerable demand and short supply and could expect to receive a salary in the range of $22-28,000.00 per annum.

The bankrupt has, since he was engaged as the managing law clerk of H. Hamilton Moore & Co., worked as a managing law clerk and in effect as a manager of real estate development activities. He is the office manager of HHM Services. He attends to legal work, in particular conveyancing work himself, delegates it to other staff and superintends their activities. He estimates that he devotes about 10% of his working time to the affairs of Mrs. Harding's companies. When acting for clients interested in real estate he organises purchases and sales, financing the purchases, arranges insurance and attends to the legal work customarily involved in conveyancing transactions.

It is difficult to assess what effect the fact bankruptcy would have on the employability of the bankrupt in the two fields, the subject of evidence from the two witnesses to whom I have just referred. I have no doubt that it would operate to some extent against the bankrupt's prospects of employment outside H. Hamilton Moore & Co., so some discount must be made in any attempt to assess the potential earnings of the bankrupt on the assumption that he remains an undischarged bankrupt, at least for some time in the future.

Doing the best I can on the evidence, in my opinion the bankrupt probably would be able to find employment in Sydney as a managing law clerk including attending to real estate matters in much the same way as he does at the moment for a present salary of about $20,000.00 per annum plus the use of a motor car.

In my opinion the bankrupt has chosen to accept a salary of $175.00 per week plus $50.00 per week motor car expenses knowing that in fact he will receive substantially more remuneration allowances and benefits through his association with HHM Services and Mrs. Harding's companies, facilitated by his access to cheque books of some of those companies and of HHM Services. Whether he has deliberately structured the situation whereby he receives substantially greater benefits than his actual salary and travelling and entertainment allowance paid by HHM Services or has found it convenient to fall in with the present position, it is not necessarily for me to determine. I am satisfied that the bankrupt is at least content for the present situation to continue for the purpose of minimising his liability to income tax and preventing a successful application being made under s. 131 of the Act for payment out of his income of moneys to his estate for the benefit of his creditors.

There is broad correspondence between the benefits actually enjoyed by the bankrupt, measured in financial terms, albeit somewhat arbitrary, and the remuneration that he could be expected to receive in the open market, based on the evidence of Mr. Simpson and Mrs. Rubin.

I turn now directly to the question whether an order of discharge should be made.

In considering an application for discharge, it has been said on many occasions by the Courts that regard must be had not only to the interests of the bankrupt and his creditors but also to the interests of the public and to commercial morality. In the exercise of its discretion the Court must also consider the bankrupt's conduct relative to his bankruptcy: see Re Prince; ex parte the bankrupt (1961) 19 A.B.C. 39; Re Gray (1960) 19 A.B.C. 29; Re Mallan (1975) 6 A.L.R. 161; Re Reilly (1979) 36 F.L.R. 268; Re Weiss - McGregor J. 3 September 1980, unreported; Re Kolomy - McGregor J. 2 October 1981 unreported.

In Re Gaskall (1904) 2 K.B. 478 Vaughan-Williams L.J. said at p. 482:-

"After all, the overriding intention of the legislature in all Bankruptcy Acts is that the debtor on giving up the whole of his property shall be a free man again, able to earn his livelihood, and having the ordinary inducements to industry. Sometimes it is not right that the bankrupt should be free immediately; he must pass through a period of probation and theoretically there may be cases in which he ought not be free at all, but prima facie he has to give up everything he has, and on doing that he is to be made a free man."

The bankrupt has contributed very little to his creditors since his bankruptcy out of that income. He could have shown his good faith to his creditors by making reasonable contributions out of his real income. Before an order of discharge is made he must demonstrate his good faith by making positive efforts to contribute moneys out of his real income to his estate for the benefit of his creditors. The fact that the deficiency in the estate is more than $1 million doubtless precludes the contribution by the bankrupt of sufficient moneys to extinguish or substantially reduce the deficiency; but the bankrupt may both contribute to the maintenance and advancement of his family and derive money for the benefit of his creditors. There is no inconsistency between the two on the facts of this case.

It is true that a bankrupt is entitled to retain income for his own benefit, subject to s. 131. Hence there is no legal obligation imposed on the bankrupt to pay income to the Official Trustee otherwise than pursuant to an order under s. 131. However, the real income of the bankrupt is substantially greater than the income hitherto disclosed by him; and it was not until the hearing of this application that the true position emerged. The Official Trustee may seek to make an application under s. 131 in the future; and one reason for refusing an order of discharge is so that the Official Trustee may assess the situation and decide whether to make such an application. Further the ability of the bankrupt to make contributions to his estate is itself a relevant matter independently of s. 131.

It was contended by the objectors that the very immensity of the deficiency is itself a ground for refusing the discharge. I do not accept that submission. The size of the deficiency in the estate is a relevant matter for consideration; but it must be tempered by the fact that the principal creditor, Carpenters, must have been well aware of the risks involved in financing real estate ventures when it financed the activities of the ZAP group. The slump in the real estate market in the mid 1970's exposed many people to severe financial risk. The bankrupt was one such person. ZAP had heavily committed itself to mortgage repayments to Carpenters. The bankrupt guaranteed the repayments. The bankrupt may have made serious errors of judgment; but the immense deficiency was not caused by any fraudulent conduct of the bankrupt.

The objectors contend that in many instances the bankrupt was a party to the deception of the Commissioner of Income Tax and that this must militate against his application for an order of discharge.

During December 1980 and January 1981 cheques were drawn by Fameto on its rent account with the Bank of New South Wales for the purpose of paying for various capital improvements to Mrs. Harding's house at Noosa Heads - in particular the building of the swimming pool and the purchase and laying of sandstone flagging in the grounds of the house - a substantial sum. These payments were described by the bankrupt on the relevant cheque butts as having a quite different purpose, namely expenses on revenue account in respect of income producing properties of Fameto having no connection with the Noosa Heads house.

For example, cheque No. 77507 was drawn on 10 December 1980 and made payable to Leisuretime Pools for $1,810.00 being 25% of the cost of construction of the pool at Noosa Heads; but it was described in the cheque butt as "renovations, Denison Street" by the bankrupt. Cheque No. 775080 dated 29 January 1981 was made payable to "L. Champion" said to be a "plumber" whereas in fact the cheque was for the replacement of a dinner set in Mrs. Harding's home at Paddington. Mr. L. Champion is not a plumber.

Other cheques were drawn on Fameto's rent account for fictitious purposes. For example, cheque 775073 of 12 January 1981 was drawn for "Cash" and was described on the butt as "Entertainment Bank of New South Wales". There was no such entertainment.

I have already referred to the fact that HHM Services made payments by cheques drawn to cash or made payable to Fameto, or Hassett Harding or other persons described as "Secretarial Services" or "Travelling"; whereas in fact this was an inaccurate description of the purpose of the payment; and no rational explanation has been given for these descriptions.

I am satisfied that the bankrupt was responsible for masking the true character of the payments, for the purpose of increasing deductions for tax purposes of Mrs. Harding's companies, in particular, Fameto. I take this matter into account in determining whether an order of discharge should be made.

After this evidence emerged during the cross-examination of the bankrupt an attempt was made to put it right by the despatch of letters to accountants for Mrs. Harding's companies drawing attention to these anomalies. I doubt very much if these remedial steps would have been taken if cross-examination of the bankrupt had not elicited the truth.

Another matter relied on by the objectors as disqualifying the bankrupt from an order of discharge concerns the execution of certain documents including memoranda of transfer, memoranda of mortgage and an authority to receive moneys. Counsel for the objectors cross-examined the bankrupt and put to him that he had forged the signatures of Mr. Geoffrey Hamilton Moore, Mr. Jones and a Mr. David Brown on certain of these documents.

It was asserted that the bankrupt had signed a signature purporting to be that of Mr. Jones as secretary of Anidoa, Goodge Street Investments and Fameto on documents executed under the seals of those companies, all without the authority of Mr. Jones; and that the bankrupt had signed a signature purporting to be that of Mr. Geoffrey Hamilton Moore on a memorandum of transfer of land to Goodge Street Investments, the purported signature of Mr. Hamilton Moore appearing as solicitor for the transferee on the document. As to an authority to receive dated 8 October 1979 and purporting to be executed by Anidoa it was said that the bankrupt had forged the signature "R. N. Jones" above the word "Secretary".

The bankrupt denied that he had signed any of these signatures. Mr. Hamilton Moore was not called but Mr. Jones and Mr. Brown were called and they denied that the signatures purporting to be their signatures appearing on the documents in question were in fact their signatures.

Forgery is a word, like many others, that takes it meaning from the context in which it appears. Sometimes it means forging of a false document to represent a genuine document; but generally it connotes the false making of an instrument or thing with intent to defraud. The very essence of forgery is intent to defraud: see Welham v. D.P.P. (1961) A.C. 103.

The memorandum of mortgage dated 29 May 1973 from Mr. Brown to Carpenters secured the repayment of an advance of $61,550.00. Mr. Brown appears in the document as the mortgagor. It is common ground that the mortgaged property, although purchased in Mr. Brown's name, was in equity the property of one of the ZAP companies. ZAP, the bankrupt and Mr. T. M. Clune are joined in the document as sureties. In the space provided for the signature of the mortgagor there appears a signature "D. Brown" and it purports to be witnessed by the bankrupt as a Justice of the Peace. It is common ground that the signature purporting to be that of the bankrupt as the witness to Mr. Brown's signature is in truth the bankrupt's signature.

I accept Mr. Brown's denial that it was his signature as mortgagor as truthful.

It is not disputed that Carpenters relied on the faith of the mortgage and assumed that Mr. Brown, by executing the document as mortgagor, convenanted to repay the principal sum and interest. Carpenters commenced proceedings to enforce the mortgage against Mr. Brown but, when confronted with his denial that he had executed the mortgage, discontinued the proceedings. Carpenters exercised its power of sale as mortgagee of the mortgaged property and sustained a loss, after realisation, of $58,094.00. By attesting as a Justice of the Peace the signature purporting to be that of Mr. Brown, at the very least the bankrupt held out to Carpenters that the mortgage was validly executed by the mortgagor. That was improper.

There is one other aspect of this matter that I should mention namely, that several documents are in evidence which, it is common ground, bear the signature of Mr. Geoffrey Hamilton Moore. They include, in particular, three memoranda of transfer and a discharge of mortgage. The signature "G. Hamilton Moore" also appears on a memorandum of transfer of land to Goodge Street Investments dated 13 October 1978. The signature "G. G. Hamilton Moore" appears as solicitor for the transferee on the document. Plainly, that signature is markedly different from the signature on the other documents which is admittedly that of Mr. Hamilton Moore. Indeed the signature on the memorandum of transfer of 13 October 1978 is very similar to the signature "G. G. Hamilton Moore" which appears on exhibit 5, that is a sheet of paper which the bankrupt during the early stages of his cross-examination was asked by counsel for the objectors to use for the purpose of reproducing from memory as best he could, the signature "G. G. Hamilton Moore".

I say no more about this question and make no findings with respect to it because the allegations are serious, no hand-writing experts were called to give evidence, and it arose as but one of many matters during the hearing. I should add that the bankrupt said that he did not have express authority from Mr. Hamilton Moore as the managing law clerk of his firm to accept transfers by signing Mr. Hamilton Moore's signature.

The circumstances surrounding the execution of the documents, in particular the mortgage bearing Mr. Brown's signature, cast grave doubt on the truthfulness of the bankrupt's denial that he forged the signatures of others and require further investigation by the appropriate authorities including the Official Trustee. Until the matter has been explored further there should be no order of discharge. Of course, if no further enquiry is conducted by any person or, if there is undue delay in conducting those enquiries, it should not act to the detriment of the bankrupt in bringing any subsequent application for an order of discharge.

I should add that it was contended by Carpenters that the bankrupt has been guilty of fraud (s. 150 (6) (h)) by signing the signatures of others. As I do not think it appropriate to make any findings as to these signatures, I am not satisfied that this contention has been established.

For these reasons, in my opinion, the application for discharge must be refused.

There is one observation I will make before parting with the matter. The bankrupt is a man in his mid 30's recently married with two young children. Much of his future lies ahead of him. It would be unfortunate if he were to remain bankrupt for many years in the future when his bankruptcy was brought about essentially by ZAP being over-committed to Carpenters at a time when many other people in real estate development made not dissimilar errors of judgment. But the bankrupt's conduct, in particular since his bankruptcy, has been such that before he can obtain a discharge he must show that he is worthy of it. He must make amends by doing what he can to help his creditors. He has the capacity to do so. Doubtless this will mean that he should conduct his affairs in the future so as to make available some of his real income to his creditors. It is impossible to measure the extent to which the bankrupt should make contributions to his estate; but he must demonstrate before he seeks a discharge again that he has acted reasonably to assist his creditors.

I have the firm impression that much of the vehemence of the opposition to the bankrupt's application is because he did not seek to redeem himself after his bankruptcy by doing his best to help his creditors in a tangible way; but defied or ignored them and lived high. Such conduct does not win friends. It opens old wounds. He would do well to change his tune in the future.

As to costs, much of the time in these proceedings was occupied by cross-examination of the bankrupt and his witnesses on objections which the objectors have failed to establish. The bankrupt should pay one-third of the costs of the Official Receiver, Carpenters and Mr. Shaw of this application.

On earlier direction hearings in this matter questions of costs of complying with subpoenas were raised before other judges and reserved or not determined. Liberty to apply should be reserved to enable these questions to be determined.

I make the following orders:-

1. That the application for discharge be refused;

2. That the bankrupt pay one-third of the costs of the Official Receiver, of Carpenters and of Mr. Shaw of this application including reserved costs;

3. I express the view that no subsequent application for discharge should be made until these costs are paid;

4. That liberty to apply generally on seven days' notice be reserved including liberty to any interested person to apply in relation to costs of complying with any subpoenas.