Re Rose, Robert Michael

[1983] FCA 197

Re: ROBERT MICHAEL ROSE, APPLICATION FOR DISCHARGE
No. W7 of 1976
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY
Beaumont J.

CATCHWORDS

Bankruptcy - Application for discharge from bankruptcy - Exercise of court's discretion - Consideration of circumstances behind bankrupt's unsuccessful trading record - Regard to interests of bankruptcy and creditors.

Bankruptcy Act 1966 - section 150

HEARING

SYDNEY

#DATE 8:8:1983

ORDER

1. The public examination of the bankrupt shall be deemed to have been concluded on 20 July, 1976.

2. I order the discharge of the bankrupt.

JUDGE1

This is an application for discharge made pursuant to s.150 of the Bankruptcy Act, 1966 ("the Act"). The applicant was made bankrupt on his own petition on 19 January, 1976. In his report dated 28 July, 1983, the Official Receiver reported (inter alia) the following:

(a) An objection to the discharge of the bankrupt from his bankruptcy by force of s.149 of the Act was lodged by the Trustee on 17 June, 1980 on the ground that "The bankrupt has a deficiency in excess of $3,000,000.00". The objection has not been withdrawn.

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

(i) Leasehold factory premises at Pagewood $400,000.00

Less amounts owing under:

First mortgage to Burns Philp Finance Ltd. $381,000.00

Second mortgage to Westpac Banking Corp. Ltd. 77,500.00 458,500.00

----------- ----------- Deficiency $ 58,500.00 ---------- (ii) Land and office building at Crows Nest $450,000.00

Less amounts owing under:

First mortgage to Burns Philp Finance Ltd. $793,000.00

Second mortgage to the Estate of the late Peter Wolfenden 77,000.00 870,000.00

---------- ----------

Deficiency $420,000.00

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Cash deposited with solicitor $ 100.00

Household furniture and effects 1,500.00

-------- $ 1,600.00 --------

The assets described in (i) and (ii) were assets of partnerships of Rose and Laing, and Rose, Laing and Wolfenden. Mr. Laing became a bankrupt on 17 December, 1976.

(c) An amount of $2,464.05 has been brought to the credit of the estate as follows:

Refund of stamp duty $ 4.05

Contributions: 1976 $150.00

1977 330.00

1978 330.00

1979 240.00

1980 360.00

1981 420.00

1982 420.00

1983 210.00 $2,460.00

------ --------

$2,464.05

--------

(d) In his statement of affairs the bankrupt disclosed twenty five unsecured creditors totalling $2,996,727.90 as follows:

15 creditors in respect of personal debts $ 121,209.20

1 creditor in respect of a partnership debt 23,208.00

9 creditors in respect of liabilities arising from personal guarantees given for company debts 2,852,310.70

------------

$2,996,727.90

------------

The bankrupt also disclosed the secured creditors referred to above. The majority of the debts that arose out of personal guarantees relate to guarantees given for debts of R.L.M. Properties Pty. Ltd. and R.L.M. Constructions Pty. Ltd. Nine proofs of debt were lodged against the estate and were admitted to rank for dividend as follows:
Ordinary $145,443.00
Deferred 669.00

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$146,112.00

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(e) After payment of petitioning creditor's costs, fees and remuneration, dividends totalling 0.79 cents in the dollar were paid to proved creditors.

(f) The bankrupt is a married man aged 43 years with four children aged 18, 12, 10 and 8 years partly dependent upon him for support. Since 1979 he has been employed as a manager of a number of property development companies with his net annual income being as follows:

YEAR ENDED NET INCOME

---------- ----------

30.6.79 $ 9,037.00

30.6.80 $17,296.00

30.6.81 $16,527.00

30.6.82 $18,790.00

(g) The bankrupt is presently employed by Citadel Development Co. Pty. Ltd. at a net weekly wage of $332.00. The weekly expenses of persons said to be partially dependent upon him for support is $282.00.

(h) The house property at Parriwi Road, Mosman where the bankrupt resides is owned by his wife. It was purchased by her in 1981 for $205,000.00 with mortgage finance provided by the National Australia Bank. He and his wife pool their incomes and use such moneys for living expenses plus all outgoings on the property. Mrs. Rose is director of a public relations company known as M.R.P.R. Pty. Ltd.

(i) Between 1968 and 1974 the bankrupt was either a shareholder or shareholder and director of R.L.M. Properties Pty. Ltd., R.L.M. Constructions Pty. Ltd., R.L.M. Developments Pty. Ltd., R.L.M. Management Pty. Ltd., R.L.M. Help Pty. Ltd. and R.L.M. Investments Pty. Limited. With the exception of R.L.M. Constructions Pty. Ltd., the companies were formed with a minimal paid up capital for the purpose of acquisition, development and management of property on the North Shore of Sydney. R.L.M. Constructions Pty. Ltd. acted as the builder for the group which specialises in commercial and high-rise residential development work. Eleven projects were involved. Finance for the purchase and development of the sites was arranged through Burns Philp Ltd., Lombard Australia Ltd., Australian Guarantee Corp. Ltd., F.N.C.B. Waltons Ltd., The North Shore Gas Coy. Ltd. and the Bank of New South Wales. The bankrupt gave personal guarantees in support of the companies' debts and mortgages were taken by the financiers.

(j) In May, 1974 R.L.M. Constructions Pty. Ltd. went into liquidation with debts of $673,000.00. No dividend was paid to creditors. R.L.M. Properties Pty. Ltd. went into liquidation in 1974. The company did not pay a dividend to creditors. In December, 1972 R.L.M. Management Pty. Ltd. was deregistered as was also R.L.M. Developments Pty. Ltd. The bankrupt sold his shareholding in R.L.M. Help Pty. Ltd. to Mr. Ian Macaskil, a shareholder in several of the companies referred to above for a transfer of his shareholding in the other companies.

(k) In 1972 the bankrupt, Robert James Laing and Clifton Vincent formed a partnership to conduct a quarterhorse property stud business which was to trade as the Macarthur Stud Farm Partnership at Cobbity. The property was purchased for approximately $285,000.00. A deposit of $85,000.00 was paid with that money being contributed in equal proportions by the partners. The moneys contributed by the bankrupt and Mr. Laing were withdrawn from companies within the R.L.M. group of companies. Mortgage finance to complete the transaction was provided by Lombard Australia Limited. In order to enable stables and a yard to be completed, the partnership borrowed a further $80,000.00 from Lombard Australia Limited. Such building work was carried out by R.L.M. Constructions Pty. Ltd. Shortly after all work was completed, Lombard Australia Limited entered into possession of the security as its mortgage was in default. No accounting was received from the company for this transaction. There was a shortfall of $2,700.00 following the sale of the property.

(l) In 1973 the bankrupt and Mr. Laing leased a property at Pagewood from the Public Transport Commission of New South Wales for a period of fifty years. It was proposed that a factory complex would be erected on the site. Finance to enable the work to proceed was provided by Burns Philp Ltd. and Westpac Banking Corporation Ltd. Burns Philp Ltd. was given a mortgage over the leasehold as security for its debt but it would not agree to any security being registered in favour of the Bank. All building work was carried out by R.L.M. Constructions Pty. Ltd. The factory complex was subsequently completed. As ground rent was in arrears, Burns Philp Ltd. came to an arrangement with the Public Transport Commission for it to take over the lease. The security was later sold by Burn Philp Ltd. The company has not provided the Official Trustee with an accounting for the sale of its security.

(m) In 1973 R.L.M. Properties Pty. Ltd. commenced construction of a motel on land which it had leased at Spit Junction from the Public Transport Commission. All building work was undertaken by R.L.M. Constructions Pty. Ltd. Mortgage finance was provided by the North Shore Gas Co. Ltd. Construction was completed in 1973. Necessary plant and equipment was leased from Reinehr Boston Leasing Pty. Ltd. Both lease agreements were supported by personal guarantees from the bankrupt and Mr. Laing. The company conducted the motel business until July, 1974.

(n) In 1972 R.L.M. Properties Pty. Ltd. purchased land at 349 Pacific Highway, Crows Nest for $210,000.00 with mortgage finance provided by Burns Philp Ltd. and Peter Wolfenden, who was the company accountant. The bankrupt stated that it was agreed that the company would purchase the land in trust for a partnership to be called the Rose Laing Wolfenden Partnership. It was intended to erect office accommodation on the site with further finance from Lombard Australia Ltd. Construction work was to be done by R.L.M. Constructions Pty. Ltd. All building work was completed. However, before tenants could be found for the complex, Burns Philp Ltd. entered into possession of its security as its mortgage was in arrears. The property was later sold by the mortgagee. Apparently, there was a deficiency on sale.

(o) No matters were reported pursuant to sub-section 150(6).

The bankrupt gave evidence in an affidavit that in relation to all applications for finance made either with regard to joint venture projects or the other projects mentioned above the following documentation was provided to the finance company: a letter of application; plans and descriptions of the project including in many cases an artist's impression of the finished project; a feasibility study; a statement of assets and liabilities of the joint venturer or borrower; and in those cases where the joint venturer or borrower was a company, a statement of assets and liabilities of the directors. By reason of their involvement as financiers and joint venturers in many projects, both Lombard Australia Ltd. and Burns Philp Ltd. were aware of the contingent liabilities of the companies and the directors. Personal guarantees were required by Burns Philp Ltd. as a condition of lending where the borrower was not sufficiently capitalised. The bankrupt said that he could recall Mr. Lord, an executive of Burns Philp Ltd., telling him not to be concerned about giving them. The bankrupt said that, at all times, Mr. Laing was responsible for the accounting and bookwork of the companies and partnerships and of the ventures and projects in which they were involved and he relied upon Mr. Laing for information and advice as to trading results: from time to time when he asked Mr. Laing how the companies were trading, he was assured that they were trading profitably and he had no reason to believe otherwise.

Further, the bankrupt says that such of the joint ventures and other projects as were financially unsuccessful and which brought about his bankruptcy, were unsuccessful because of the drastic slump which occurred in the property market in 1973 and 1974 and the increase in interest rates on such finance as was available. He said that these circumstances were beyond his control and since the financiers of the joint ventures and other projects were aware of his financial situation, he did not attempt to mislead them.

The applicant has now been bankrupt for seven and a half years. Whilst the deficiency, on its face, is massive it can, I think, be explained along the lines suggested by the bankrupt. In particular, it is significant that no interest in the bankruptcy, let alone this discharge application, has been demonstrated by the financiers who suffered most by the bankrupt's failure: they have not even sought to prove in the bankruptcy.

No misconduct or reckless behaviour on the part of the bankrupt is suggested, whether before or after his bankruptcy. It is true that some difficulties did arise in connection with questionnaire forms forwarded by the Official Receiver but the bankrupt claims not to have received the documents in question. Given his sworn evidence to that effect, I do not think that anything turns on this matter for present purposes.

Although the bankrupt has made little impact on the overall deficit in his estate by the contributions he has made out of his salary, it would appear that the amount contributed has been in the range of what could be regarded as reasonable.

In my opinion, no useful purpose, so far as creditors are concerned, would be served by continuation of the applicant's status as a bankrupt. In my view, the term of seven and a half years already served as a bankrupt is sufficient in all the circumstances. I therefore propose to make the following orders:
(1) I order that the public examination of the bankrupt shall be deemed to have been concluded on 20 July, 1976.
(2) I make an order of discharge.