Re Sambo, G. v Ex parte Sambo, G
[1987] FCA 319
•22 JUNE 1987
Re: GIANCARLO SAMBO (bankrupt)
Ex Parte: GIANCARLO SAMBO
Nos. 410 of 1962 and 667 of 1983
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF SOUTH AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
French J.(1)
CATCHWORDS
Bankruptcy - applications for discharge - two bankruptcies in 1962 and 1983 - s.269 convictions during first bankruptcy - failure to keep proper books of account prior to second bankruptcy - no opposition to applications - applicant not intending to engage in further commercial activity - desire to be free of stigma - public interest and commercial morality dominant considerations - exceptional to discharge from second bankruptcy while first bankruptcy on foot - public interest protected by conditional suspended discharge from first bankruptcy - conditional suspended discharge from second bankruptcy.
Bankruptcy Act 1966 ss.149, 150
Re: Zion; Ex parte The Bankrupt (unrep. Smithers J. 26/9/80)
Re: Maher (1985) 61 ALR 592
Re: Tarvydas; Ex parte Tarvydas (unrep. Toohey J. 25/11/86)
Re: Bontes; Ex parte Bontes (unrep. French J. 12/2/87)
HEARING
PERTH
#DATE 22:6:1987
Counsel for the Applicant: Mr J. Hammond instructed by Kott Gunning
Counsel Mr F. D. O'Driscoll for the Official Receiver in Bankruptcy
ORDER
The bankrupt is discharged but the operation of the order is suspended subject to the following condition until 22 December 1987.
The condition is that the bankrupt undertake to the Court not to carry on business on his own account or in partnership or execute any guarantee or hold office as a director or secretary of any company until 22 December 1990.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
The bankrupt is discharged but the operation of the order is suspended subject to the following condition until 22 December 1988.
The condition is that the bankrupt undertake to the Court not to carry on business on his own account or in partnership or execute any guarantee or hold office as a director or secretary of any company until 22 December 1990.
Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.
JUDGE1
Giancarlo Sambo has twice become bankrupt. The first time was on 28 September 1962 in South Australia. The second occasion was 5 October 1983 in Western Australia.
He now applies for discharge from both bankruptcies.
The application for discharge from the bankruptcy in South Australia was filed in the Registry in that State but transferred to Western Australia by order of Forster J. on 16 March 1987.
At the date of his first bankruptcy Mr Sambo was 29 years of age, married with one dependent child.
He had moved to Adelaide in 1958 and commenced work as a commission land salesman.
For reasons associated with his lack of success as a land salesman, he became unable to pay his debts in May 1961 and filed a petition in bankruptcy.
In June 1961 he was charged with conversion in relation to dealings with one of his clients. He was subsequently imprisoned for a term of 14 months.
His statement of affairs disclosed no assets, although $628.62 was realised from cash at the bank, contributions and a $10.00 deposit.
Proofs of debts totalling $4,062.00 were received from 9 unsecured creditors and were admitted.
Four other creditors, totalling $920.00, were listed in the statement of affairs but no proofs were received from them.
A dividend of 17.05 cents was paid to ordinary creditors whose proofs of debt were admitted.
After his first bankruptcy commenced and presumably after serving the term of imprisonment imposed on him, Mr Sambo obtained employment as a carpenter. In October 1966 he moved to Western Australia.
On 21 April 1970 the Official Receiver in South Australia lodged an objection to his discharge pursuant to s. 149 of the Bankruptcy Act on the ground:-
"That the bankrupt has failed to complete the return required of him under section 80(3) of the Bankruptcy Act 1966-1969."
In late 1978 or early 1979 Mr Sambo wished to operate a business on his own account. He instructed an accountant to ascertain whether he had been discharged from his bankruptcy in South Australia by the effluxion of time.
On 3 April 1979 his accountant enclosed an opinion from a firm of solicitors.
The solicitors were, it seems, not given his name.
Their brief as expressed in their letter of advice was:-
"We understand the position to be that a person was declared bankrupt in the Eastern States approximately 20 years ago and and (sic) we have been requested to advise on his current legal position."
The letter said, inter alia:-
"(b) If the person in question became bankrupt prior to 1966 then under the legislation which existed prior to 1966 that person would remain an undischarged bankrupt unless and until he applied to the Court for a discharge. This we understand has not been done and therefore it can be safely assumed that until 1966 such person remained an undischarged bankrupt.
(c) In 1966 a new Bankruptcy Act was enacted by virtue of which a person who became bankrupt prior to 1966 is automatically discharged from bankruptcy, subject to the Act, upon the expiry of 3 years following the coming into operation of the Act. We can therefore also assume that, subject to the Act, in normal circumstances the person concerned would automatically have been discharged in 1969 and a Certificate of discharge would be available upon request.
(d) The only section of the new Act which prevents an automatic discharge after the 5 year period is Section 149 subsection (3) which provides that the automatic discharge shall not apply if the person concerned is still a bankrupt under another prior bankruptcy or if the registrar in bankruptcy, the trustee or a creditor has filed a notice of objection to the automatic discharge. We understand that the person concerned has not previously become a bankrupt and the bankruptcy is one of long standing namely approximately 20 years. In the circumstances we feel it unlikely that either the registrar, the trustee (sic) or a creditor would have bothered to file an objection between 1966 and 1969 and it is therefore likely that the person concerned has now been automatically discharged. We note however that the only safe way to confirm this is to conduct a search at the Bankruptcy Registry."
The advice proceeded on the wrong assumption that the Act came into operation in the year that it was passed. In fact it came into operation on a date fixed by proclamation namely, 4 March 1968.
The effect of s.149 of the new Act was that, in the absence of any objection, Mr Sambo would have been entitled to an automatic discharge "upon the expiration of 3 years from the commencement of the Act", namely 5 March 1971. The lodgment of the Official Receiver's objection on 21 April 1970 blocked the path to that automatic discharge.
By Act No. 12 of 1980, s.149 was amended by repeal and substitution so that an objection could only stand for 5 years from the date of bankruptcy, unless extended by order of the Court. (s.149(9)).
Objections lodged prior to the amendments were treated, by virtue of a transitional provision (s.72(2) of No. 12 of 1980), as though the period of 5 years ran from the date of commencement of the new s.149, that is, from 1 February 1981.
On that basis, the objection did not lapse until 2 February 1986.
Although the letter of advice forwarded to Mr Sambo by his accountant indicated that the only safe way to confirm discharge was by a search at the Registry, no such search was undertaken. According to Mr Sambo's affidavit, "the matter was left on the basis that I had been discharged".
In about 1976 he began to carry on the business of building alterations and renovations under the name "Colonial Building Drafting Company". The business ceased operation for a time in 1980 but resumed in 1981 and carried on for a further 10 months.
It began, however, to experience financial difficulties. There was a decline in building industry activity during this period and a building firm for which the business had carried out some work failed.
Mr Sambo borrowed to fund his operating expenses and to purchase a home unit and a motor vehicle. Ultimately, he found himself unable to meet his obligations and filed a petition in bankruptcy on 5 October 1983.
During the period 1981 to 1983 he had obtained credit from a number of sources.
On 28 February 1985 he was charged with 9 offences under s.269(a) of the Bankruptcy Act for obtaining credit in excess of the amount of $500.00 without disclosing that he was an undischarged bankrupt.
The dates, lenders and amounts the subject of the charges were:-
Date Lender Amount
22/5/81 and
20/11/83 National Bank of Australasia $ 2,919.90
17/7/81 Bank of New South Wales $17,500.00
27/5/82 Esanda Limited $2,547.00
14/6/82 Esanda Limited $ 1,529.63
7/10/82 General Motors Acceptance $ 1,027.00
28/10/82 Custom Credit Corporation $ 3,360.00
15/11/82 R. & I. Bank $ 2,973.49
1/12/82 Custom Credit $ 5,010.10
12/1/83 Western Underwriters $ 2,500.27
He was convicted on all counts and released after entering into a $2,000.00 recognisance to be on good behaviour for a period of 2 years.
Mr Sambo maintains that, as a result of the advice he had obtained in April 1979, he believed at all material times that he had been discharged from his 1962 bankruptcy.
The credit which he obtained was, he said, largely for the purpose of purchasing materials for his business.
The loans from Westpac were to enable him to purchase a unit in Tuart Hill. The loan from General Motors Acceptance Corporation was for the purchase of a motor vehicle. So too, was the advance from the National Bank.
The Official Trustee's report indicates that, since the date of his second bankruptcy, he has experienced substantial periods of unemployment.
He commenced his current employment as a foreman/supervisor at Chalice Construction in 1984/85, and contributed regularly towards his debts at the rate of $300.00 per month until October 1986.
Nine claims totalling $20,662.00 were proved in the second bankruptcy and his assets and contributions realised $8,040.00.
Official fees totalling $2,034.20 have been paid. A dividend of 28.3553 cents in the dollar has been paid to proven creditors.
In the first bankruptcy the Trustee reports unsatisfactory conduct after bankruptcy by reason of the breaches of s.269(a) but not otherwise.
In the second bankruptcy, the Trustee reports satisfactory conduct but points to a failure, prior to the bankruptcy, to comply with the obligation to maintain adequate books of account in respect of the business that operated between 1976 and 1983.
That is said in the report to be a matter which, under s.150(6), provides sufficient reason for the refusal or suspension of a discharge order.
In an affidavit filed in support of his application, Mr Sambo speaks of his determination to clear his name.
He now lives with his wife in a small unit, which she owns.
He is approaching 55 years of age and would like the opportunity to purchase a large unit with a garden or perhaps a house.
While undischarged from his bankruptcy he will be unable to get a loan for that purpose.
He does not intend to go into business on his own account in the future.
Notices of the applications have been sent to creditors but none have sought to oppose them.
The applications are governed by the provisions of ss.149 and 150 of the Bankruptcy Act 1966 which, in the relevant parts, provide:-
"149 (1) Subject to this section, a person who becomes a bankrupt after the commencement of this section is, by force of this section, unless sooner discharged in accordance with section 150, discharged from bankruptcy upon the expiration of 3 years from the date of the bankruptcy.
(2) Subject to this section, a person who was an undischarged bankrupt immediately before the commencement of this section is, by force of this section, discharged from bankruptcy -
(a) in a case where the bankrupt became a bankrupt more than 3 years before the commencement of this section - upon the commencement of this section; or
(b) in any other case, unless sooner discharged in accordance with section 150 - upon the expiration of 3 years from the date of the bankruptcy.
(3) A bankrupt is not discharged from bankruptcy by virtue of this section if -
(a) at the time when he would have been so discharged but for this sub-section, he is still undischarged from an earlier bankruptcy;
(b) he has, since the date of the bankruptcy, again become a bankrupt;
(c) the Registrar, the Inspector-General or the trustee has entered, or a creditor has, with the leave of the Court, entered, an objection, in accordance with the prescribed form and in the prescribed manner, to the discharge of the bankrupt by force of this section and the objection has not been withdrawn or lapsed before the time when the bankrupt would have been so discharged but for this sub-section;
.
.
.
150 (1) A person who becomes, or has before the commencement of this sub-section become, a bankrupt may apply to the Court for an order of discharge at any time after -
(a) his public examination has been concluded;
(b) the trustee has notified him in writing, that the trustee does not intend to make an application for his examination under section 69; or
(c) the expiration of the period of 12 months commencing on the date of the bankruptcy.
.
.
.
(3) On the hearing of an application under this section, the Court shall take into consideration a report in writing by the trustee concerning the bankrupt, his conduct, trade dealings, property and affairs both in respect of the period before and the period after the applicant became a bankrupt.
(4) The Court may, in addition -
(a) hear, and put such questions as it thinks fit to -
(i) an Official Receiver;
(ii) a creditor whose debt has been proved;
(iii) the bankrupt; or
(iv) the trustee; and
(b) receive such other evidence as it thinks fit.
(5) The Court shall, if any of the matters specified in sub-section (6) is established -
(a) refuse to make an order of discharge; or
(b) make an order of discharge but suspend the operation of the order as the Court thinks proper, either unconditionally or subject to conditions.
(6) The matters upon the establishment of which the Court may exercise the powers specified in sub-section (5) are as follows:-
(a) that the bankrupt has omitted to keep and preserve such books, accounts or records as sufficiently disclose his business transactions and financial position within the period of 5 years immediately preceding the date on which he became a bankrupt; or
.
.
.
(i) that the bankrupt has been convicted of an offence against this Act or the repealed Act or of any other offence related to his bankruptcy.
(7) The Court shall not, under sub-section (5), suspend the operation of an order of discharge subject to conditions that require, or have the effect of requiring, the bankrupt to make payments from his income at any time after the expiration of the period of 5 years commencing on the date of the bankruptcy.
.
.
.
(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.
(10) The Court shall not, under sub-section (9), suspend the operation of an order of discharge beyond the period of 3 years commencing on the date of the bankruptcy.
(11) The Court may, at any time while the operation of an order of discharge (including such an order made before the commencement of this sub-section) is suspended, rescind or vary the order.
(12) A report referred to in sub-section (3) is, for the purposes of this section, prima facie evidence of the statements contained in it."
By reason of the combined operation of subsection 150(5) and (6)(i), the best that Mr Sambo can hope for, in respect of his application for discharge from the first bankruptcy, is an unconditional discharge suspended for a period to be fixed by the Court.
The principles applicable in an application for discharge have been frequently stated. In Re: Zion; Ex parte The Bankrupt (unrep. Smithers J. 26/9/86) at page 3, Smithers J. 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."
The discharge application requires a consideration of the interests of the public and of commercial morality - Re: Maher (1985) 61 ALR 592.
In this case, some 25 years has elapsed since the date of the first bankruptcy in respect of which discharge is sought. Four years have passed since the second bankruptcy.
There were offences committed against the Act during the currency of the first bankruptcy but they took place nearly 20 years after it had occurred.
The sentencing court's assessment of their seriousness is, I think, reflected in the light penalty that was imposed.
Mr Sambo says that he thought he had been discharged. A careful reading of the legal advice received by him in 1979 should have alerted him to the need to search the Register.
The letter from his accountant which accompanied the solicitor's advice said, inter alia:-
" . . . I am of the impression that the Opinion attached hereto is a very good one and it should certainly put
your mind at rest. However, I would point out that, in
accordance with paragraph (d) it may be advisable to have my Solicitor conduct a search on your behalf at the relevant Bankruptcy Registry."
Having regard, however, to the time that had passed between the first bankruptcy and the commission of the offences, and to the generally reassuring tone of the advice received, I would not regard the fact of Mr Sambo's convictions as sufficient to warrant a refusal of this application.
The principal considerations in this application are those of the public interest and commercial morality.
Mr Sambo's desire to clear his name of the stigma of bankruptcy is a factor which is relevant to his application, although not of itself sufficient to justify discharge - Re: Tarvydas; Ex parte Tarvydas (unrep. Toohey J. 25/11/86).
In my opinion the public interest will be adequately protected if Mr Sambo's discharge is conditional upon his exclusion from commercial activity for a time. Commercial morality will be recognised by the suspension of the discharge order for a period of 6 months.
In respect of the first bankruptcy I will therefore order that:-
1. The bankrupt is discharged but the operation of the order is suspended subject to the following condition until 22 December 1987.
2. The condition is that the bankrupt undertake to the Court not to carry on business on his own account or in partnership or execute any guarantee or hold office as a director or secretary of any company until 22 December 1990.
If the undertaking is given, then Mr Sambo will be discharged from his first bankruptcy in six months but will be bound by the condition for 3 years after the date of his discharge.
Turning now to the application for discharge from the second bankruptcy, the Trustee's report alleges that prior to bankruptcy Mr Sambo " . . . omitted to keep and preserve such books, accounts or records as sufficiently disclose his business transactions and financial position within the period of 5 years immediately preceding the date on which he became bankrupt".
The report is, by virtue of sub-s. 150(12), prima facie evidence of the statements contained in it.
It is stated in the report, and not disputed, that in connection with his business venture Mr Sambo kept cash records only. He kept no cash receipts and payments journals, debtors or creditors ledgers nor any general ledger or job cost records.
I am satisfied in the circumstances that it is established that in terms of s. 150(6), Mr Sambo omitted to keep and preserve sufficient books, accounts and records in relation to his business.
Being so satisfied I am unable to make an order for his unconditional discharge (sub-s. 150(5)).
The question remains whether I should make an order for discharge suspended for a period, pursuant to s. 150(5)(b).
It is only in exceptional circumstances that the Court would contemplate discharging a person from a second bankruptcy while a first is still in effect. - Re: Bontes; Ex parte Bontes (unrep. French J. 12/2/87)
An absolute discharge is not open at present. The alternatives are to make an order discharging Mr Sambo from his second bankruptcy suspended for a period or to dismiss or adjourn his application in relation to it so that it will be necessary for him to come back before the Court in 6 months.
In my opinion nothing is to be served in this case, by imposing such a requirement. The public interest would, I think, be adequately protected by making an order of discharge from the second bankruptcy suspended for a period of 18 months and conditional on an undertaking not to participate in any commercial activity on his own account for a period expiring on 22 December 1990.
My orders in respect of the second bankruptcy therefore will be:-
1. The bankrupt is discharged but the operation of the order is suspended subject to the following condition until 22 December 1988.
2. The condition is that the bankrupt undertake to the Court not to carry on business on his own account or in partnership or execute any guarantee or hold office as a director or secretary of any company until 22 December 1990.
0