Re Neaves, L.W.B v Ex Parte Neaves, L.W.B

[1990] FCA 355

Re: LAWRENCE WILLIAM BROWN-NEAVES
Ex parte: LAWRENCE WILLIAM BROWN-NEAVES
Nos. 314 of 1981 and 148 of 1984
FED No. 355
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
French J.(1)

CATCHWORDS

Bankruptcy - discharge - two successive bankruptcies - 6 years elapsed since second bankruptcy - no grounds for suspended discharge - risk of further insolvency - public interest - commercial morality criteria.

Bankruptcy Act 1966 s.149(3)

Re: Zion Ex parte The Bankrupt (unrep. Smithers J. 26/9/86)

Re Maher (1985) 61 ALR 592

HEARING

PERTH

#DATE 16:7:1990

The Applicant appeared in person.

Mr J. Busher appeared on behalf of the Official Receiver.

ORDER

In relation to bankruptcy No. 314 of 1981 the bankrupt is discharged.

In relation to the bankruptcy No. 148 of 1984 the bankrupt is discharged.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

Lawrence William Brown-Neaves became a bankrupt on his own petition on 3 July 1981 and again on 19 March 1984. The second bankruptcy occurring before the expiry of three years from the first had the effect, by virtue of s.149(3) of the Bankruptcy Act 1966, that he is not entitled to a statutory discharge from either. He now applies to the Court for discharge from both. The application is brought under s.150 of the Act.

1. Brown-Neaves and his wife began trading in partnership as builders in 1975. They arranged a $3,000 overdraft with the Commercial Bank of Australia, guaranteed by his brother. In March 1976 they purchased a block of land for $7,500 and built a house on it. The land and house were financed by a loan from Town and Country Building Society, secured by a first mortgage. A second mortgage in favour of the Bank secured the business overdraft. The business ran into difficulties in 1978 and when the Bank demanded that the overdraft be reduced by half, Mr and Mrs Brown-Neaves put their house up for sale. It was sold in June 1979 for $90,000 which was sufficient to discharge all encumbrances. They continued the building business until October 1980 without significant improvement and at that time decided to cease trading. Brown-Neaves then went back to his trade as a bricklayer. As he and his wife had insufficient money to satisfy creditors and support their family, they filed a joint petition on 3 July 1981.

2. Assets disclosed in the statement of affairs of the joint estate were $5,018, against liabilities of $65,757. Twelve proofs of debt were admitted in the joint estate totalling $29,441. One claim was received for $4,519 in the separate estate of Mr Brown-Neaves but not admitted. His statement of affairs showed no assets and no liabilities. Realisation of the assets of the joint estate yielded $43. No official fees or administrative costs were paid in that bankruptcy. The Official Receiver's report indicates that he is not aware of any conduct by Brown-Neaves prior to or since the bankruptcy which has been other than satisfactory. He accepts that the causes of the bankruptcy were a lack of working capital and over expenditure on the construction of the matrimonial home. Although the report ventured some criticism of the lack of detail in the accounting records, that such records as were maintained were sufficient to disclose the Brown-Neaves' financial position. The report also concluded that there were no matters arising under sub-s.150(6) of the Act which would provide sufficient reason for the refusal or suspension of an order of discharge.

3. From July 1981 Brown-Neaves worked as a bricklayer. He continued to experience financial difficulty because of his low income and large family. He had altogether six children, four of whom were, in 1984, under the age of 16 years and dependent on him for support. He was renting a property at City Beach for $630 a month and by 1984 was $2,568 in arrears. In February 1984 he received an income tax assessment for $5,205 and decided to file a debtor's petition as he was unable to meet this demand and that of his landlord. At the time he was grossing about $570 per week as a subcontract bricklayer. Since the bankruptcy he has continued to work as a bricklayer on a sub-contract basis.

4. The Official Receiver's report on the second bankruptcy indicates that realisation of assets in the estate yielded $200 against one claim received but not admitted for $14,270. As in the previous bankruptcy, no official fees, administrative costs or dividends were paid. The report did not indicate any relevant unsatisfactory conduct and accepted that the bankruptcy was caused by insufficient earnings, high rent and loss of work due to a slump in the building industry as well as failure to provide for income tax. Sufficient records had been kept and there were no matters under sub-s.150(6) which would provide sufficient reason for the refusal or suspension of an order of discharge.

5. In his affidavit in support of the application for discharge, Brown-Neaves said that in the nine years since he first became bankrupt he has suffered stigma and embarrassment and lost business opportunities through his inability to act as a company director. Those opportunities, he claimed, would have greatly enhanced his earning capacity. The affidavit went on:
   

"Recently I have been offered the prospect to join with another financially sound person, to use my qualification of registered builder and to engage in the construction of commercial buildings for several investment syndicates. This is a more rewarding use of my talents, qualifications and experience.

In order to take advantage of the offer it is necessary for me to become a director of a new building company.

This is the major reason for my request to be discharged from bankruptcy."

1. In oral evidence in answer to questions from the Court, he disclosed that he has accrued some substantial liabilities since his second bankruptcy. He is apparently a party with his wife to a first mortgage over their matrimonial home which is registered in his wife's name only. He claims that the house has recently been valued at $215,000 and says that he presently owes some $66,000 on it which is being paid off at the rate of $1,004 a month. They have two cars under hire purchase from GMAC and Esanda on which a total of some $25,000 is owed and on which he is paying $285 and $495 respectively each month. There is a personal loan from Westpac Banking Corporation of $3,500 which is being paid off at $217 monthly and an outstanding tax bill of $12,800 which is being repaid at a monthly rate of $800. Total monthly outgoings therefore amount to $2,837. He is trading as a bricklayer in partnership with his wife and they earn a joint gross income of $80,000 which yields a net income of $66,000. They have had six children but only one of them, a 17 year old, is still dependent. Mr Brown-Neaves explained that his builder's registration is current and that he has been invited by a person of some financial substance to become a director of a building company so that the company may take advantage of his registration. The only evidence of this proposed arrangement was Brown-Neaves' oral testimony.

2. In relation to each of these applications I have regard to the principles enunciated by Smithers J. in Re: Zion Ex parte The Bankrupt (unrep. Smithers J. 26/9/86) where his Honour said:
   

"In my view it is the policy of the law that bankruptcy should in most cases come to an end at 3 years and when there is an objection at the end of 5 years from the decree for sequestration of the estate, but that in a case where public interest so requires the discharge may be delayed or made conditional according to the requirements of the public interest in the circumstances of the case. Public interest will require that a discharge be delayed or made conditional if the conduct revealed or the character of the bankrupt indicates that the return of the bankrupt to the commercial world in full freedom might involve unacceptable risk to persons likely to be engaged in commercial relations with him in the future. In other words, it is for the applicant to show that balancing the policy of the law in favour of the return to commercial life of a bankrupt against the dangers that might accrue to the public from full commercial capacity of the applicant, it is appropriate that the discharge be granted."

I note also the comments of Woodward J. in Re Maher (1985) 61 ALR 592:

"An application for discharge is never treated lightly by the Court. As with the granting of a sequestration order, an application for discharge involves looking beyond the interests of the applicant and his or her creditors to considering both the interests of the public and commercial morality."

1. It is now some six years since Mr Brown-Neaves became a bankrupt for the second time. His family burdens have diminished and he has evidently achieved a reasonably stable income from his occupation as a bricklayer. The taxation liability of $12,800 accrued since his last bankruptcy however indicates that he has had some difficulty in making provision to meet all his commitments which are not inconsiderable having regard to his income. He has evidently some arrangements in place with a finance company to consolidate his debts under one advance.

2. The question whether he should now be discharged is one which involves considerations of public interest and commercial morality. There is nothing in the material before me to indicate any dishonesty, sharp practice or recklessness on his part which might give rise to issues of commercial morality. The public interest is involved to the extent that there is a risk that he could again find himself in difficulty. He has however been able, even after disclosing his status as a bankrupt, to obtain credit from a bank and two finance houses and to maintain his commitments. There is of course a possibility that he will again overreach and find himself unable to meet his debts. But there comes a point at which that possibility is outweighed by the passage of time and the need to allow him the opportunity to make full use of his qualifications as a builder and to progress in that field.

3. As no matter arises under s.150(6) in respect of either bankruptcy, the power of the Court to deal with the applications now before it is to be found in sub-s.150(9):
   

"150(9) Where none of the matters specified in sub-section (6) is established, the Court may -

(a) refuse to make an order of discharge;

(b) make an order of discharge; or

(c) make an order of discharge but suspend the operation of the order as the Court thinks proper, either unconditionally or subject to conditions."

The power so conferred is limited by sub-s.150(10):

"150(10) The Court shall not, under sub-section

(9), suspend the operation of an order of discharge beyond the period of three years commencing on the date of the bankruptcy."

No question of a suspended discharge arises as more than three years have elapsed since each of the bankruptcies was commenced. In the event I am satisfied that having regard to the public interest no useful purpose will be served by further continuing the bankruptcies and I propose to order that Mr Brown-Neaves be discharged.

1. The orders will be therefore:
   

1. In relation to bankruptcy No. 314 of 1981 the bankrupt is discharged.

2. In relation to the bankruptcy No. 148 of 1984 the bankrupt is discharged.