Re Pitt, Kenneth James

[1983] FCA 150

Re: KENNETH JAMES PITT (1983) 77 FLR 189
Bankruptcy

COURT

FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
Beaumont J.(1)

CATCHWORDS

Bankruptcy - Objection to discharge - Conduct of bankrupt prior to and since bankruptcy - Discretion - Bankruptcy Act 1966 (Cth), ss 149, 150(6), (9).

HEADNOTE

On 2 December 1976 a sequestration order was made against the estate of the applicant (the bankrupt). On 18 September 1978 an objection to discharge from bankruptcy pursuant to s 149 of the Bankruptcy Act 1966 was lodged by the Official Trustee on the ground that "the claims lodged against the bankrupt's estate exceed $40,000". The objection was not withdrawn. The bankrupt contributed slightly in excess of $7,430 to his estate; this sum was substantially his equity in a house property. Other than in satisfying a portion of the priority claims, the estate was insufficient to meet the admitted proofs of debt. The history of the bankrupt prior to and since the bankruptcy showed no dishonesty. There was no evidence that the bankrupt could have contributed more to his trustee for the benefit of the creditors than he did. There were no matters reported pursuant to s 150(6) of the Bankruptcy Act 1966. There was no opposition to his application for discharge.

Held: The discretion of the court should be exercised under s 150(9) of the Bankruptcy Act 1966.

Re Trautwein (1950) 15 ABC 119 per Clyne J at 129, referred to with approval.

HEARING

1983, June 14; July 21. #DATE 21:7:1983

APPLICATION

Application pursuant to s 150 of the Bankruptcy Act 1966 (Cth) for an order of discharge from bankruptcy. The facts are set out in the judgment below.

P Brereton, for the bankrupt.

Solicitors for the bankrupt: Duncan Barron & Co.

DL

JUDGE1

21 July 1983

BEAUMONT J. A sequestration order was made against the estate of Kenneth James Pitt (the bankrupt) on 2 December 1976 upon the petition of a creditor, Yorkstar Motors Pty Ltd. He now applies for an order of discharge from bankruptcy pursuant to s 150 of the Bankruptcy Act 1966 (Cth) (the Act). The application is not opposed by any creditors or by the Official Receiver.

On 18 September 1978, an objection to discharge from bankruptcy by force of s 149 of the Act was lodged by the Official Trustee on the ground that "the claims lodged against the bankrupt estate exceed $40,000". The objection has not been withdrawn and hence has prevented an "automatic" discharge from bankruptcy under s 149 at the expiration of the statutory period.

In his statement of affairs, the bankrupt disclosed the following assets:

House property at 135-137 Maybe Street,

Bombala $24,000

Less amount owing under 1st mortgage to

Esanda Ltd 9,000 -----. $15,000 Less one half share of wife 7,500 $7,500 -----.

Mercedes Benz truck 12,000 Less amount owing under lease

agreement to Esanda Ltd 15,000 -----. Deficiency $3,000 -----. Mercedes Benz truck 8,000 Less amount owing under hire purchase

agreement to Esanda Ltd 6,000 2,000 -----. Hallmark trailer 1,500 Less amount owing under hire purchase

agreement to Esanda Ltd 2,000 -----. Deficiency $500 -----.

Cash in hand 100 Machinery and fork lift truck 1,000 Trade fittings, fixtures, utensils 100 1962 Datsun Utility 50 Book debts 3,000 Household furniture 500 Leasehold property at Bombala 100 -------. $14,350 -------.

The above assets, with the exception of the house property, cash in hand, household furniture and leasehold property, were assets of a partnership road haulage business conducted by the bankrupt and his wife. The house property, registered in the joint names of the bankrupt and his wife, was sold by the mortgagee. The surplus on sale of $7,301.46 in respect of the bankrupt's interest therein was received on settlement. It appears forfeiture action was taken by the Department of Lands in respect of the leasehold property at Bombala for the non-payment of Crown dues.

A total of $7,431.26 was brought to the credit of the estate as follows:

Deposit on petition $20.00

Contributions paid - 1982 100.00

Book debts 9.80

Sale proceeds of house property at

135-137 Maybe Street, Bombala

Sale price $45,000.00 Less adjustment for rates $744.22

Legal fees 346.45

Mortgage debt to Esanda Ltd 29,306.41 30,397.08 --------- ----------. $14,602.92 Less one half share of Mrs Pitt 7,301.46 7,301.46 ---------- ---------. $7,431.26 ---------.

The bankrupt has made contributions of $100 up to 1982. The bankrupt's equity in the house property at Bombala is his only real contribution to the estate.

The bankrupt disclosed sixty-one unsecured creditors for amounts totalling $46,471.96 and the secured, hire purchase and leasehold creditors detailed earlier. Forty-four proofs of debt have been lodged in the estate which have been admitted to rank for dividend as follows:

Priority - s 221P(1) and (2) $12,723 Ordinary 40,080 Deferred 5 -------. $52,808 -------.

After payment of fees, remuneration and petitioning creditor's costs, the Deputy Commissioner of Taxation was paid 100 cents in the dollar in respect of the priority claim of $5,447 for taxation instalment deductions lodged on 17 July 1978. He was also paid a further dividend of 5.4 cents in the dollar in respect of a priority claim of $7,276 for taxation instalment deductions lodged on 28 November 1980.

The public examination of the bankrupt was held on 6 September 1977 when it was adjourned to a date to be fixed.

The bankrupt is a married man aged forty-one years, with a wife and five children aged from seven to sixteen years dependent upon him for support. His usual occupation has been that of a transport driver but during the last seven years, since his bankruptcy, he has only worked on a casual basis at times. He gave evidence that he has never at any stage received unemployment benefits and that he has been living off the earnings derived from a dry cleaning business owned by his wife.

Some mention should be made of the history of the bankrupt's commercial dealings prior to his bankruptcy. In December 1972, the bankrupt and his wife formed a partnership to conduct a road transport business. The bankrupt leased the vehicle used in the conduct of the business from Automotive Acceptance Co Pty Ltd at a monthly rental of $479.19. The business, comprising largely of the transport of wood pulp, commenced trading during January 1973 and continued trading until November 1976.

In June 1973, the bankrupt and his wife acquired a property described as 135-137 Maybe Street, Bombala for a price of $20,000. A deposit of $6,000 was paid from the proceeds of sale of their Bibbenluke property and from drawings from their business. Mortgage finance of $14,000 was provided by Esanda Ltd, with a guarantee provided by the bankrupt's father-in-law, John William Legge. The mortgage was to secure all other present and future liabilities, obligations and indebtedness of the mortgagor. The partnership continued to operate from this address. In August 1980, the house property was sold by Esanda Ltd in exercise of its power of sale.

In June 1974, the vehicle leased from Automotive Acceptance Co Pty Ltd was damaged. The vehicle could not be repaired for some time because of a dispute over liability for the costs of repairs. In order to continue trading, the bankrupt and his wife acquired on hire purchase from Esanda Ltd a Mercedes prime mover costing $17,000. A cash deposit of $5,664.70 was paid and monthly instalments of $404.87 were payable over a period of three years. The vehicle was repossessed in 1979.

On 20 June 1974, the bankrupt took over the terms of a lease agreement from AB and RL Walker on an International truck. Monthly instalments of $338.53 were payable to International Harvester Credit Corp. The bankrupt also leased a Mercedes 1418 truck from the same company, with monthly instalments of $375 involved. As turnover increased, additional vehicles were required and the partnership engaged two drivers for these vehicles. These employees were paid a set rate per journey. Both these vehicles were surrendered on 5 December 1974, with the instalments having been paid under either agreement.

On 12 July 1974, the bankrupt and his wife acquired a Hallmark truck on hire purchase from Esanda Ltd. A cash deposit of $1,335.30 was paid, with monthly instalments of $95.17 payable to the finance company. The vehicle was repossessed in January 1979.

In December 1974, a Mercedes truck was leased from Esanda Ltd for a period of three years at a monthly rental of $680.55. This was at the time when the two vehicles which had been leased from International Harvestor Credit Corp had been surrendered to that company. At the same time, the dispute concerning the repair of the Bedford truck was settled and the vehicle was sold. The proceeds of sale were used to satisfy the debt to Automotive Acceptance Co Pty Ltd. The Mercedes truck was subsequently sold by the finance company to the bankrupt's wife for the amount outstanding under the lease agreement.

In January 1976, the bankrupt borrowed $2,000 from the Commonwealth Trading Bank, Bombala to provide additional working capital. The bankrupt's father-in-law, John William Legge, provided a guarantee and in 1977 was called upon by the bank to pay the debt pursuant to that guarantee.

The partnership ceased trading in November 1976 and all employees were dismissed. At the time, it had the following assets and liabilities:

ASSETS

Mercedes prime mover on hire purchase from Esanda Ltd Hallmark trailer on hire purchase from Esanda Ltd Mercedes truck on lease from Esanda Ltd

Machinery and forklift truck

Trade fittings, fixtures and utensils

1962 Datsun utility

Book debts - approximately $3,000

TRADE CREDITORS

Approximately $65,000

Although the bankrupt's wife failed to provide the Official Receiver with any accounting for the winding up of the partnership, he does not press the matter.

The bankrupt's father-in-law, John William Legge, subsequently took over the business using the partnership vehicles and equipment. The bankrupt was the sole employee and he stated in evidence that he received no wages or salary at that time. The business continued until approximately December 1978. In January 1979, the Mercedes prime mover and the Hallmark trailer were repossessed by Esanda Ltd as instalments were in arrears. The bankrupt has been either unemployed or engaged in casual employment as a truck driver since December 1978.

The Official Receiver in his report dated 3 June 1983 advises that no books of account or records have been produced for the partnership. However, financial statements prepared by the accountant for the partnership, from information supplied by the bankrupt and his wife, revealed the following:

YEAR ENDED LESS PROFIT/LOSS TOTAL DRAWINGS ........ .... ........ ........ . ........ ...... 30 June 1974 Loss $1,966 $4,662 30 June 1975 Profit $11,392 $11,998 30 June 1976 Loss $5,741 $16,674

The bankrupt has attributed his bankruptcy to a loss of income following continual breakdowns with trucks used in the partnership business. The Official Receiver believes that a contributing cause was the lack of working capital and excessive drawings from the business by the partners.

The applicant has been a bankrupt for a period of over six years. The Official Receiver reports that the conduct of the bankrupt has been satisfactory since his bankruptcy. Moreover no matters specified in s 150(6) of the Act have been reported. The bankrupt has stated he desires a discharge so that he can take steps towards the betterment of himself. There is no opposition to the application. In Re Trautwein (1950) 15 ABC 119 at 129, Clyne J said: "Though laxity in the granting of discharges may well have mischievous consequences, I think that it is reasonable that the Bankruptcy Act should be administered in such a way as to assist honest debtors who have been unfortunate."

Section 150(9) provides as follows:

"Where none of the matters specified in subsection (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."

I have the power under subs (9) to exercise my discretion in the bankrupt's favour. In all the circumstances, having considered the bankrupt's conduct previous to and during his bankruptcy, an unconditional order for discharge ought to be made.

I order that the public examination of the bankrupt shall be deemed to have been concluded on 6 September 1977. I order the discharge of the bankrupt.

ORDER

Orders accordingly