Re Tieleman, R.

[1991] FCA 558

Re: RUDOLF TIELEMAN
Ex Parte: RUDOLF TIELEMAN
No. 687 of 1990
FED No. 558
Bankruptcy

COURT

IN THE FEDERAL COURT OF AUSTRALIA

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

CATCHWORDS

Bankruptcy - application for early discharge - chartered accountant - recent bankruptcy - 12 months - substantial deficiency - no misconduct on part of bankrupt - no attempt to make contribution - serious errors of judgment - public interest and commercial morality - discharge refused.

Bankruptcy Act 1966

HEARING

PERTH

#DATE 26:8:1991

Counsel for the Applicant : Mr K.L. Christensen

Solicitors for the Applicant : Phillips Fox

Miss C.J. Stabb appeared for the Official Receiver.

ORDER

The application be dismissed.

NOTE: Settlement and entry of Orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

This is an application for early discharge by Rudolf Tieleman, who became bankrupt on his own petition on 11 July 1990. The report filed with the Court by the Official Receiver, for and on behalf of the Offical Trustee, indicates that Mr Tieleman was, at that time, a chartered accountant employed by Pannell Kerr Forster. He had been working for that firm since November 1989 and was on a weekly net income of $750.00. He had operated his own business from April 1984 to April 1987, trading in South Perth under the name "Rudolf Tieleman, Chartered Accountant". The business had cost about $105,000 to acquire. He had borrowed money from his father-in-law, Mr James Graham, to buy it. In 1987 the business was sold to Whyte Hatton and Associates Pty Ltd for $86,000 and the proceeds used to pay out existing loans including a repayment to Mr Graham of about $82,000. Mr Tieleman nevertheless maintained a number of clients and also became involved with a company called "International Chemical and Fertiliser Company Pty Ltd", which proposed the establishment of an ammonia and urea factory. That project was abandoned in August 1987. Mr Tieleman says he was not paid for time spent during his involvement with it and as a consequence lost both income and clients. In September 1987 he purchased a 40% interest in T.A. Miles Pty Ltd which traded as Carringtons, Public Accountants. That business operated initially at Mill Point Road, South Perth and later in Outram Street, West Perth. Mr Tieleman borrowed $45,000 from Challenge Bank to acquire his interest. The loan was later paid out by the National Australia Bank.

1. In March 1988, according to his account of it to the Trustee, Carringtons purchased the business of Peter Currall, Chartered Accountants for $189,000. The purchase price was financed by Custom Credit Corporation and later paid out by the Natwest Bank. The practice generated only half the expected fees which resulted in a substantial loss to Carringtons that has not yet been recovered. The Carringtons practice was eventually sold to Courtney Montague for around $180,000. The Official Receiver's report indicates that no explanation has been given of the distribution of these funds. Mr Tieleman, in evidence, said that he assumed that the proceeds had all been taken up in satisfying security held by the Natwest Bank. The business was sold by a receiver and it seems unlikely that there was, in truth, any surplus available in relation to his 40% interest. He was unable to give any precise indication of the distribution but appeared to have made the assumption I have mentioned.

2. In October 1989 Mr Tieleman and his wife sold a property in Mt. Pleasant to satisfy securities held by the National Australia Bank. That sale resulted in a $50,174 deficiency. Other real property had been sold in June 1988 and October 1988. All three properties had been jointly owned by Mr Tieleman and his wife. He was unable to meet the demands of all creditors and filed a debtors petition on 11 July 1990. After becoming bankrupt he was employed as a taxation manager at Pannell Kerr Forster until 2 August 1991 when that employment was terminated. The circumstances of the termination were elaborated upon by Mr Tieleman in evidence. A partner with whom he was closely associated in the firm left it and although he was offered continued employment it was at a substantially reduced salary, some $40,000, and was in the area of financial planning. He did not like the financial planning area and left the firm.

3. In discussing the causes of his bankruptcy, the Official Receiver's report refers to Mr Tieleman's statement that the main cause was the failure of Carringtons and its inability to service debts which precipitated guarantee demands which he was unable to pay. It also points out that Mr Tieleman is exposed to contingent liabilities likely to amount to $1,425,000. These arise from guarantees given by him for business loans by AGC Industrial Ltd and Anthony J. Vallve Pty Ltd. The loans related to the purchase of a business called "Regal Pate" and associated premises at Welshpool. AGC Industrial Ltd provided $1,050,000 secured by a first mortgage and Anthony J. Vallve Pty Ltd, vendor finance of $375,000. The business "Regal Pate" was purchased by Prominent Investments Pty Ltd. The shareholders and directors of that company were Mr Tieleman's former partners in Carringtons, although he himself was neither shareholder nor director. Additional business creditors to the value of $376,419 were disclosed on his statement of affairs and a business overdraft of $25,706 was later advised by Natwest. These debts apparently related to the failure of Carringtons and were joint debts with Terrence Miles and Gordon Sklenka. Remaining creditors to the value of $76,768 were not business related. The Trustee reports that there have been no charges in relation to offences under the Bankruptcy Act 1966, and that the conduct of the bankrupt before and after the bankruptcy has not been other than satisfactory. One of the creditors, Perpetual Finance Corporation Ltd, lodged a notice of intention to oppose the application for discharge on the ground that there was no attempt made by Mr Tieleman to reduce outstanding debts. There are no matters under sub-s.150(6) of the Act which would provide reason for the Court to refuse an order of discharge or suspend the operation of such an order. Creditors have been notified of this application but no creditor has appeared to oppose it.

4. In his affidavit in support, Mr Tieleman gives history of his background and the events surrounding the acquisition of Currall's practice by Carringtons, efforts made to reduce overheads, the fact that his own financial needs in July 1989 forced him to leave Carringtons and seek employment and the employment that he was offered with Pannell Kerr Forster. Mr Tieleman says his bankruptcy was caused by a collapse of the Perth housing property market at a time when his wife and he were forced to sell their family home because of pressure from the National Australia Bank to secure the practice's debt and an inability to withdraw from guarantee commitments once initial funding was in place, an inability to collect from debtors despite legal action for recovery of outstanding debts and an inability to recover funds from Currall for contractual adjustments due to Carringtons. He also cites an inability to recover a large fee account from International Chemical and Fertiliser Company Pty Ltd for professional services rendered. He contends that at no time has he ever engaged in hazardous speculation, extravagant living, gambling or neglected his business affairs. Mr Tieleman says the fact that he is an undischarged bankrupt has hindered his ability to progress professionally and has impaired his ability to operate as a tax professional. He cannot hold the licence necessary to be a tax agent while he is an undischarged bankrupt and this, he says, prevents him from being able to lodge tax returns which he is responsible for lodging in respect of his family.

5. Mr Tieleman said in evidence that so far as the question of contribution was concerned, he had not been asked to provide any contribution and made the assumption that the Official Trustee took the view that his present circumstances and what he called his "station in life" were such that no contribution was necessary. He has produced in Court a schedule of living expenses for the year ended 30 June 1991 against a net annual disposal income of $62,000 gross, reduced after tax and medicare levy to $44,076.71. That schedule is broken up by reference to household and other expenses and the cost of rental accommodation which, at present, is $190 per week. On the face of it there is nothing to indicate that the creditors should hold out any hope for any benefit derived from the continuance of the bankruptcy for the full term of 3 years. Nor is there any suggestion of illegal or extravagant or improper conduct on the part of Mr Tieleman. There is, what I might describe as a certain flaccidity in the approach to the question of what, if anything, he could do to at least recognise in some way the liabilities that he had incurred, the position of his creditors and the possibility of some contribution. Although having regard to the obligations to his family which includes three children, the expenses which were set out in his schedule were not extravagant, $62,000 was not an unreasonable income and one might have thought that some effort could have been made, when he was earning at that level, to explore the possibility of contribution. If one for example compares it with the figures paid to university academics, $62,000 approaches a professorial level and considerably exceeds that payable to lecturers. No doubt other comparisons could be drawn across the spectrum of occupations in the community.

6. In my opinion the governing considerations in this case are public interest and commercial morality. That is not to suggest any impropriety or dishonesty or extravagant behaviour on Mr Tieleman's part. But the substantial amount of the deficiency, even allowing for unexpected downturns in the property market, indicates substantial errors of judgment. Their seriousness may be assessed by reference to the fact that as a chartered accountant Mr Tieleman would be expected to have a more knowledgeable foundation from which to approach financial decision-making than many other peope. Against that background and having regard to the comparatively short time since he became a bankrupt and, to a lesser degree, the apparent absence of any attempt to explore the possibility of a contribution to his estate, I think it would be inappropriate at this stage to order discharge. At a later time it may be that a further application could be made, but I think evidence would have to be presented of either complete inability to make any contribution or alternatively some effort to do that on his part. The application will be dismissed.