Re Tarvydas, H.M. v Ex parte Tarvydas, H.M

[1985] FCA 591

59'

Rankruptcv - application for discharge - bankruptcy already

extended from 3 to 5 years - test to be applled - observations

Concerning contents of trustees report - observations concerning

proper procedure for application - suspension

Bankruptcv Act 1966 s.150

Bankruptcv Rules rr.52, 103

RE: HARVEY MARTIN T A R W A S - Bankrupt

M PARTE: HARVEY MARTIN TARVYDAS - Applicant

No. 391 of 1981

TOOHEY J.

PERTH

22 NOVEMBER 1985

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IN THE FEDERAL COURT	)
OF AUSTRALIA	)
GENERAL DIVISION	) No. 391 of 1981

BANKRUPTCY DISTRICT 1

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OF THE STATE OF	)
WESTERN AUSTRALIA	)

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RE : HARVEY MARTIN TARVYDAS

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Bankrupt

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I Ex PARTE: HARVEY MARTIN TARWDAS

I	i	Applicant
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I	MINUTE OF ORDER
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I	JUDGE MAKING ORDER: TOOHEY J.
I	DATE OF ORDER: 25 November 1985
I	WHERE MADE: Perth
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I	THE COURT ORDERS THAT:
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’ HARVEY MARTIN TARVYDAS be discharged from bankruptcy but that the

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i	discharge be suspended until	28 February 1986.
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I	Note: Settlement and entry of orders is dealt
I	with in Rule 124 of the Bankruptcy Rules.
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IN THE FEDEEWL COURT

OF AUSTRALIA

GENERAL DIVISION	No. 391 of 1981
BANKRUPTCY DISTRICT

OF THE STATE OF

WESTERN AUSTRALIA

RE: HARVEY MARTIN TARVYDAS

Bankrupt

EX PARTE: HARVEY MARTIN TARVYDAS

Applicant

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TOOHEY J.

25 November 1985

REASONS FOR JUDGMENT

This is an application for discharge from bankruptcy

pursuant to the provisions of s.150 of the Bankruptcv Act 1966.

The applicant, Harvey Martin Tarvydas, is a medical practitioner

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but his bankruptcy was not connected with the conduct of his

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medical practice. Before his bankruptcy Dr. Tarvydas also carried

on business as a women‘s clothing manufacturer and retailer,

trading under the name of House of Tarvydas. On 28 August 1981 a

sequestration order was made against him on the petition of Hunter

Fabrics Pty. Ltd., a judgment creditor of the business.

On 17 August 1984 the Official Receiver, on behalf of

the Official Trustee. lodged an objection to the discharge

of Dr. Tarvydas on the following grounds:

“(1) That the conduct of the bankrupt, either in respect

of the period before or the period after the date

of bankruptcy, has been unsatisfactory

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( 2 ) That the bankrupt has falled to co-operate in the

administration of hls estate".

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As a result of that objection, Dr. Tarvydas lost the benefit of

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sub-s.149(1) of the Act and did not obtain a discharge at the end ;.;

of 3 years. His bankruptcy continues for a period of 5 years

unless the Court exercises its power under s.150 and grants a

discharge before the expiration of that period.

Dr. Tarvydas' statement of assets and liabilities

disclosed assets of $33,580 and liabilities of $241,950. However

the Official Trustee has admitted claims amounting to $383,899.13.

Certain book debts and assets of the bankrupt were realized,

producing $19,650. The bankrupt has made contributions of $14,300

so that a total of $33,950 has become available for distribution.	.	C'
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Priority claims amounting to $23,297.13 have been paid in full;	I _.
the balance remaining should be enough to pay approximately two cents in the dollar to ordinary unsecured creditors.

The principal creditor is Lynette Robyn Holdings Pty.	.	i
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Ltd. which, as the owner of the premises in which the House of

Tarvydas conducted its business, is owed an amount in excess of

$250,000 for rent and outgoings. The Commissioner of Taxation has

lodged a claim for $95,991 of which $13,307 represents a priority ).<

claim under s.221P of the Income Tax Act 1936, which amount	I take	I-'
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to have been paid. No creditor sought leave to lodge	an objection	i
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under sub-s.149(3) of the Act and no creditor has asked	to be	i:i
heard in opposition to this application.

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The House of Tarvydas began in 1968. operating from

premises rented in Hay Street Perth, The business seems to have

been successful though it relied upon capital provided by I _.

Dr. Tarvydas' father. In April 1975 Dr. Tarvydas negotiated with

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the owner of premises at 307-313 Murray Street Perth for a lease

of part of those premises. In May 1975 Dr. Tarvydas and his 1 -

sister, who was then a partner in the business, took a lease of the premises for 6 years at a substantial rent of $4,170 a month

for the first 3 years and $5,616 a month thereafter, in addition

to which they were obliged to pay	a proportion of rates and other	.	i
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outgoings.. For various reasons. which it is unnecessary to detail

here, there was a dispute between Dr. Tarvydas and Lynette Robyn

Holdings Pty. Ltd., the owner of the premises, over moneys due

under the lease. Dr. Tarvydas contended that an agreement had

been reached for a reduction in rent but this was challenged by

the owner which sued for the full amount outstanding.

In or about 1977 Dr. Tarvydas, through a company called

Distinctive Designs Pty. Ltd. of which he, his sister and their father were directors, embarked on the business of manufacturing

and distributing clothes in the eastern states. Substantial

orders were received but, following a slump in the industry in

1979, many orders were cancelled and the business experienced cash

flow problems. Creditors sued and in 1981 Dr. Tarvydas was made

bankrupt.

Dr. Tarvydas now practises as a general practitioner in

Tuart Hill. As mentioned earlier, he has made some contributions

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to hls estate from his own earnlnqs though not. one would think,

as much as he might have made.

The Official Receiver contends that in a number of

respects Dr. Tarvydas' conduct both before and after bankruptcy

has been unsatisfactory. This is the basis of the objection

lodged under sub-s.149(3) of the Act. The Official Receiver also

contends that there are matters specified in sub-s.150(6), in

particular 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.

Before I deal with these matters, there are certain considerations

of general importance which call for some comment.

While the period of bankruptcy has been extended beyond

3 years by reason of the objection lodged by the Official

Receiver, the matter presently before the Court is an application

for discharge pursuant to s.150. If any of the matters specified

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in sub-s.150(6) is established (and in this respect the Official

Receiver's report is, by reason of sub-s.l50(12), prima facie

evidence of the statements contained in it), the Court must refuse

to make an order of discharge or make an order, suspended

unconditionally or conditionally (sub-s.150(5)). When none of the

matters specified in sub-s.(6) is established the Court may

nevertheless refuse to make an order of discharge, make such an

order or make an order suspended unconditionally or conditionally

(sub-s.150(9)). In several recent decisions, in particular

Re Benda (unreported decision of Toohey J. delivered 26 April

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1985). Re Maher (unreported decision of Noodward J. delivered

21 August 1985) and Re Dummett (unreported decision of Beaumont J.

delivered 27 September 1985) the Court has examined the exercise

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of discretion vested in it by sub-s.150(9). The effect of those 5': ,.

decisions is that a bankrupt seeking a discharge before the

statutory period of 3 years need not show special circumstances in

order to succeed but that there must be some cogent ground for a

favourable exercise of the discretion. Many of the circumstances

relevant to the exercise of discretion were referred to in the

three decisions just mentioned though without any attempt on the

part of the Court in any of those cases to be exhaustive. Where

the period of bankruptcy has been extended following	an objection	r .
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lodged by the Official Receiver, the principles to be applied n exercising the discretion under sub-s.150(9) are in my view the

same, for the application is still one under s.150. Vanward

Service Print v.	Mercovich (unreported decision of Full Court	..	, '
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delivered 20 September 1985) was concerned with a possible

extension of bankruptcy beyond 5 years but it seems to me implicit ! ,

in the Court's reasons that while extensions beyond 3 years may

give rise to particular factual considerations the principles

affecting the exercise of the Court's discretion remain the same.

It has been my experience with applications under 5.150

(and at the outset the present application was an illustration of !

this) that the applicant concentrates upon rebutting adverse

matters in the trustee's report. It is of course essential that

he do so if he is to obtain a discharge unencumbered by a

suspension. But it is easy to overlook the need to offer some

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reason why d discharge should be uranted. As Woodward J.

l	commented	in	Re	Maher	at	p.19:
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"A mere dislike of beinq a bankrupt - a consciousness of

the stigmas of bankruptcy, attaching to all bankrupts

but felt more by some than by others cannot of itself

be enough".

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i All too .often applicants seek to meet the charges made

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reason why they should be discharged from bankruptcy. This

approach is, I think, unconsciously encouraged by the fact that

r.52 whichis to be found in Part IV - Discharge does not require,

in the case of an application under sub-s.l50(1), an affidavit in

support. Part X - Practice and Procedure provides in Division 2

the form of procedure on application to the Court and r.103

obliges an applicant to state In an affidavit filed in support of

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the application the "grounds on which the Court will be asked to

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make the order specified	... and the facts on which the applicant	1;
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I proposes to rely . . . ' I . Sub-rule 5 2 ( 4 ) expressly provides that

rr.102-106 do not apply to or in relation to an application under

sub-s.l50(1). Thus, in the case of an application for discharge,

an applicant is not required by the form of application to direct

his attention to the grounds upon which a discharge should be

granted. Rather, he waits until the report of the trustee is

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I received and then seeks to answer any matters adverse in that

'I report. Many applicants for discharge are unrepresented by

counsel and the result is that, when the matter comes on for

hearing, the Court has not before it evidence upon which it can

consider whether a discharge is warranted. In consequence the

application may have to be adjourned to enable the applicant to

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furnish relevant materlal or the applicant qiven the opportunity

then and there of glvinq evidence not only in relation to the

trustee's report but as to the reasons for seeking a discharge.

These are matters calling for some attention on the part of those

!	concerned with the formulation of the bankruptcy rules.
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The Official Receiver's notice of objection simply

recites the language of paras.(c) and (d) of sub-s.149(4). While

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this is a sufficient compliance with the Act - see Van Reesma v.

Official Receiver (1983) 50 A.L.R. 253 - I am of the view that

particulars should be furnished so that the applicant knows the

case he has to meet and the Court is more truly apprised of the

issues involved. Equally a trustee's report made in accordance

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I	with sub-s.150(3) should specify with some particularity any	; .'
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I matters aid to fall within sub-s.150(6). Re Daff (unreported

decision of Toohey J. delivered 9 September 1985 at pp.3-4).

As it happens, the allegations in the notice of

objection that the conduct of the bankrupt has been unsatisfactory

and that he has failed to co-operate in the administration of his

estate are largely reflections of the matters specified under

para.l50(6)(a) in the Official Receiver's report, with however an

additional complaint made in the report that the bankrupt, after

knowing himself to be insolvent in late 1979, continued to trade

and obtain credit in excess of $100. Dr. Tarvydas did not dispute

that he continued to obtain credit notwithstanding the issue of a

number of writs of fi. fa. and warrants of execution but he

contended that until the moment of sequestration he did not

believe himself to be insolvent. I have difficulty in accepting

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that proposltion. particularly qiven the s l z e of the claim made by

Lynette Robgn Holdinqs Pty. Ltd. I do not overlook Dr. Tarvydas'

evldence that he thought he could make satisfactory arrangements

with the creditor, but there was little evidence to support that

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I Conduct specified as un atisfactory since bankruptcy is

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an alleged failure to provide information in regard to the

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recovery of certain book debts said to be worth about $9,000. The

Official Receiver complained that, because of paucity of

information, he was unable to recover those debts for the benefit

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of creditors. Dr. Tarvydas'	answer	was	that	he lacked	the
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necessary documentation for action to be taken in respect of those

debts. However he did co-operate with the Official Receiver in

the recovery of moneys owing in respect of his medical practice.

The lack of documentation in regard to certain debtors

of	the business is perhaps symptomatic of the complaint in the	I :
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Official Receiver's report that the bankrupt did not keep proper books of account in regard to his manufacturing and retail

business.	Dr.	Tarvydas contended that all necessary records were	..
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kept by his staff. However given the size and complexity of his

business, I am not satisfied that these records were adequate.

While the House of Tarvydas had accountants acting for it until

1976, it dispensed with those services thereafter.

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The Official Receiver's report contends that the absence

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of proper books of account is demonstrated by the fact that the ,_ i

bankrupt had not lodged income tax returns since 1973. However,

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from documents pruduced at the hearing, ~t seems that Dr. Tarvydas

has now completed lncome tax returns to the year ended 30 June

1982. 11; is not clear how much of the Commissioner of Taxation's

claim of $95.991 remains unpaid.

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I am satisfied that, in terms of para.l50(6)(a) of the

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l	Act.	Dr.	Tarvydas omitted to keep and preserve such books,	! :.
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accounts or records as sufficiently disclosed his business

transactions and financial position within the period of 5 years

immediately preceding the date on which he became a bankrupt, in

particular between 1976 and 1981. This finding precludes me from

making an order of discharge other than an order suspended,

unconditionally or conditionally. I am also satisfied that the

conduct of the bankrupt prior to bankruptcy was not satisfactory

in that he continued to trade and obtain credit when must have

appreciated, at any rate within the months immediately preceding

his bankruptcy, that he was insolvent. I am further satisfied

that he failed to provide the Official Receiver with all necessary

information in regard to the recovery of book debts but that this

I	any deliberate intention to thwart the Official Receiver.
failure was a result of an inadequate accounting system, not of

The question then arises as to the proper approach to be

taken to this application. If it is refused, Dr. Tarvydas will

I	not obtain a statutory discharge until October 1986.	The Official
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I	Receiver did not suggest that to prolong the bankruptcy would be
I	to b nefit he of creditors. And, from the absence of any ~

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I	objection	on	the	part	of	creditors,.	I take	that	to be	their	I ,
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assessment of the situation. However; it is necessary for the

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Court to mark the unsatisfactory features of the bankrupt's

conduct by suspenslon of any discharge that may be granted. Such

a suspension ought not be for a nominal period; but on the other

hand, if the Court is mlnded to grant a suspended discharge, there

1s little point in attachin? a suspension that operates for most

of the remaining period of 5 years. There are circumstances

favourlnq the application. Dr. Tarvydas has been bankrupt now for

more than 4 years. While the stigma of bankruptcy is not of

Itself enough to justify a discharge, it is a relevant

consideration and Dr. Tarvydas referred to difficulties he has

encountered in this regard. More particularly, he wishes to

incorporate aspects of his medical practice but his status a an

undischarged bankrupt precludes him from being a director of any company without the leave of the Supreme Court (Companies (Western Australia) Code s.227), thus making incorporation impracticable.

In all the circumstances I propose that there be an

order of discharge, suspended until 28 February 1986.

I certify that this and the preceding

nine pages are a true copy of the

reasons for judgment herein of his

Honour Mr. Justice Toohev.

Associate