Re Cook, W.J. v. Ex parte The Deputy Commissioner of Taxation for the State of W.A. [1985] FCA 129

GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA

RE: WILLIAM JAMES COOK Bankrupt EX PARTE: WILLIAM JAMES COOK Applicant RE: WILLIAM JAMES COOK

EX PARTE: THE DEPUTY COMMISSIONER OF TAXATION FOR THE STATE OF

Applicant MINUTE OF ORDER JUDGE MAKING ORDER : Toohey J. DATE OF ORDER : 4 April 1985 WHERE MADE 2 Perth THE COURT ORDERS THAT: i. The application by the Deputy Commissioner of Taxation

for the State of Western Australia for leave to enter an

mene ebetee Ht ete ted teal Senneterre aatetl dee no ead ee

bankruptcy by effluxion of time and to extend the period

at the expiration of which the objection will lapse is

There be an order of discharge of the bankruptcy of William James Cook, the operation of the order suspended

GENERAL DIVISION BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA

EX PARTE: THE DEPUTY COMMISSIONER OF TAXATION FOR THE STATE OF

REASONS FOR JUDGMENT There are two applications before the Court. The first is an application by the bankrupt, Dr. Cook, for an order of

discharge under 5.150 of the Bankruptcy Act 1966. Dr. Cook became

bankrupt on his own petition on 19 October 1981. In the ordinary course, sub-5.149(1) of the Act would have effected a discharge of the bankruptcy at the end of 3 years. But on 22 February 1984 the Official Receiver lodged an objection in exercise of his power

under para. 149(3)(c) of the Act. The grounds of objection were:

"{1) That the discharge of the bankrupt by force of this Section would prejudice the administration of his estate

(2) That the conduct of the bankrupt either in respect of the period before or the

period after the date of bankruptcy has been unsatisfactory".

These objections were based on paras 149(4)(a) and (d)

of the Act. Dr. Cook now seeks a discharge of his bankruptcy in accordance with 5.150 of the Act. The report of the Official Receiver dated 25 February 1985 specifies no matters under sub-s.150(6) which provide sufficient reason for the refusal or suspension of an order of discharge. But the Deputy Commissioner of Taxation for the State of Western Australia ("the Commissioner) has applied for leave to enter an objection to the discharge of Dr. Cook from bankruptcy by effluxion of time. This application was Made pursuant to para. 149(3)(c) of the Act and it asks that the period at the expiration of which the objection will lapse he

The Commissioner is a substantial creditor of the bankrupt, his last proof of debt being for the sum of $345,233.03. This amount is the product of amounts of income tax due by Dr. Cook in respect of the years hetween 1978 and 1981, largely by reason of the disallowance of losses claimed by him in

In a statement of realisation and distribution of estate made by the Official Receiver on 10 January 1985 it was shown that

realisation of Dr. Cook's property and contributions by him had

produced $230,353.94. After payment of expenses a first dividend

was declared at 43.7028 cents in the dollar on $127,462 for ordinary creditors, an amount of $55,704.41. An amount of $150,718.96 was reserved for ordinary creditors. At the hearing I was told by the Official Receiver that it will take some 2 to 3 years to finalise administration of the estate and that he anticipated there would be a further dividend of 35 cents in the dollar, making in all a dividend of nearly 80 cents in the dollar. The present and proposed dividends take into account the liabilities of Dr. Cook to the Commissioner. Some of the Commissioner''s assessments have been the subject of objection though none of these objections has yet been resolved. It may he

taken therefore that the Commissioner's claim against the estate

Dr. Cook's bankruptcy seems to have been brought about

largely through his involvement with one Christo Moll, a so-called business consultant. The repercussions of Mr. Moll's activities on the financial affairs of a number of specialist medical practitioners in this State are well known. Dr. Cook was persuaded to pay to Mr. Moll very substantial sums of money to he applied in what can be described at best as wildcat schemes designed to reduce his assessable income and produce tax free profits later on. It is not necessary, for the purposes of the matters now before the Court, to identify these schemes or to trace their implications. Indeed it would seem that it may never be possible to do this with complete precision. Dr. Cook was cross-examined on the affidavits filed by him in support of his

application for discharge from bankruptcy and he declared an

almost total ignorance of the purpose for which he paid money, saying that he was content to leave these matters to his lawyers and accountants. I did not find Dr. Cook's answers entirely satisfactory in this regard for it is hard to accept that anyone could have been quite s0 ignorant of what was taking place. The fact remains that his financial affairs hefore his bankruptcy were extremely complex and not only because of his involvement with Moll. He had an interest in farming and other properties and in various businesses. His position was further complicated by Matrimonial proceedings between him and his then wife and by orders for settlement of property made by the Family Court of

In an affidavit filed by the Commissioner in support of his application for leave to enter an objection to discharge from bankruptcy, Sheila Rajan, an advising officer attached to the recovery section of the Commissioner's office, deposed to various matters concerning Dr. Cook's affairs. The affidavit contains a complaint that Dr. Cook initially failed to disclose various assets in the form of monies due from the sale of businesses in which he was involved and monies due to him in connection with those businesses. Dr. Cook was cross-examined in respect of those allegations. He said he was unable to provide any details from his own recollection. Again I did not find his answers entirely satisfactory but no complaint is now made by the Official Receiver that Dr. Cook has failed to account satisfactorily for any loss of, or depreciation of, assets or for a deficiency of assets. Indeed the Official Receiver, in his report of 25 January 1985,

said that he knew of no reason why the conduct of the bankrupt

since the date of bankruptcy should be considered unsatisfactory, that no offences had been proved to have been committed by the bankrupt and that there were no matters specified under sub-s.150(6) of the Bankruptcy Act which provided sufficient

reason for the refusal or suspension of an order of discharge.

The Commissioner's application is made pursuant to para. 149(3)(c) of the Act, for leave to enter an objection to the discharge of the bankrupt by effluxion of time and for an order, Pursuant to sub-s.149(8), that the period at the expiration of which his objection will lapse be a period of 10 years commencing

on the date of the bankruptcy viz. 19 October 1981.

The grounds upon which an objection may be entered under

Para. 149(3)(c) are set out in sub-s.(4). They are as follows:

"(a) that the bankrupt is able, or is likely within 5 years from the date of the bankruptcy to be able, to make a significant contribution to his estate;

(b) that the discharge of the bankrupt by force of this section would prejudice

(c) that the bankrupt has failed to co- operate in the administration of his estate;

(d) that the conduct of the bankrupt, either in respect of the period before or the

period after the date of the hankruptcy, has been unsatisfactory".

The Commissioner's application did not specify a particular ground but the submissions ranged widely and I propose

As to the first of these grounds, I am not satisfied that Dr. Cook is able, or is likely within 5 years from the date ef his bankruptcy to be able, to make any further significant contribution to his estate. Although he is an orthopaedic surgeon and ordinarily would be expected to earn a high income, he has been seriously troubled with progressive loss of vision in both eyes. He has already had surgery on one eye and will need surgery on the other. Even if surgery is successful, it will be some 5 or 6 months before he is able to return to major surgery. In addition he contends that the introduction of Medicare has had

As to para. 149(4)(b), I do mot consider that the discharge from bankruptcy would prejudice the administration of the estate. Aithough this was one of the grounds of the Official Receiver's objections on 22 February 1984, the Official Receiver no longer relies on it. By reason of sub-s.152(1) of the Act Dr. Cook will continue to have statutory obligations in the continued

As to para. 149(4)(c), the Official Receiver made no

complaint of failure to co-operate and I am not satisfied that there has been such a failure, given the complexity of Dr. Cook's

As to para. 149(4)(d), it was not established that Dr. Cook's conduct since his bankruptcy has been unsatisfactory. The

Official Receiver did not suggest that it had been although it was

one of his grounds of objection. Incidentally I do not regard an objection in the form "That the conduct of the bankrupt either in respect of the period before or the period after the date of bankruptcy has been unsatisfactory" as adequate. Tf it is contended that conduct in respect of one of those periods has been unsatisfactory, the objection should specify the period. If the contention is that conduct both before and after bankruptcy has been unsatisfactory, the objection should say 50. It can be said with some force that Dr. Cook's conduct before his bankruptcy was unsatisfactory in that he seems to have shed responsibility for his own financial affairs and blindly entrusted them, at least in part, to Mr. Moll. This is a relevant consideration but at least two things must be borne in mind. The first is that ordinarily the effect of entering an objection under para. 149(3)(c) is to extend the period of bankruptcy from 3 to 5 years. It is only if an order is made under sub-s.(8) or (12) that the period of bankruptcy is further extended. The second consideration is that the conduct in question took place some years ago. Dr. Cook's actions must be measured against the impact of the bankruptcy on his own affairs, his conduct since the bankruptcy, the extent to which the realisation of his assets is likely to meet the debts owing by him and his present and future situation, in particular

his state of health and its effect on his earning capacity.

I adopt, with respect, the remarks of Fitzgerald J. in Re Palenkas (unreported decision delivered 8 November 1982) in

"The policy underlying the present legislation recognizes that it is in the interests of the

public as well as the person unable to pay his debts, that he should not be unduly denied freedon, equality of status and opportunity, or the ability and inducement to support himself and his family and to contribute to society by his efforts. Accordingly, the Act is in large part relevantly concerned with obtaining and administering the assets of the person unable to pay his debts for the benefit of his creditors and releasing the debtor from his

obligation. However, the legislature has thought it appropriate that there should be a period during which the status and

In the light of the policy of the legislation and having regard to the various matters to which I have referred, I am not Prepared to accede to the Commissioner's application. In particular I am of the view that to continue Dr. Cook's bankruptcy over a period of 10 years may not produce any substantial added benefits to his creditors but will subject him to an unwarranted

What then of Dr. Cook's own motion for discharge from bankruptcy pursuant to 5.150 of the Act? Sub-section 150(5) provides that if any of the matters specified in sub-s.(6) is established, the Court shall refuse to make an order of discharge or make an order but suspend its operation, either unconditionally

As already mentioned, the Official Receiver does not assert the existence of any matter under sub-5.150(6) or, perhaps

More accurately, in his report of 25 February 1985 he says there are no such matters "which provide sufficient reason for the

Notwithstanding the position adopted by the Official Receiver, it is conceivable that in a particular case the material before the Court may establish the existence of ome or more of the matters specified in sub-s.150(6). The Court is not restricted to the specific matters in the Official Receiver's report. Scott Fell v. Lloyd (1911) 13 CLR 230. In the present case the evidence of Dr. Cook's involvement with Moll established to my satisfaction that he brought on, or at any rate contributed to, his bankruptcy by "rash or hazardous speculations" (para. 150(6)(e)(i)). There is ample evidence to justify this conclusion in the transcript of public examination. The Court is given a wide discretion in regard to an application for discharge from bankruptcy. There are interests of the public to be taken into account as well as those of the parties before the Court. Re Gray (1960) 19 ABC 29; Re Prince (1961) 19 ABC 39. Having regard to the history of this Matter, in particular the length of time Dr. Cook has been bankrupt and the dividends paid and to be paid to creditors, I do not think that the Court should refuse to make an order of

In the circumstances it seems to me proper that there should be an order but it must necessarily be suspended for a time. I do not accept that there should be conditions attached to the suspension. Dr. Cook's earning capacity has heen affected; in any event there is no order that he make contributions from his income and the Official Receiver did not suggest that such an order was appropriate. The question then is - what period of

suspension would be appropriate? Effluxion of time will bring

about a statutory discharge on 19 October 1986. A suspension for a period terminating close to that date would achieve no useful purpose. At the same time, having regard to the provisions of the Act and the policy underlying them, the suspension should nat he merely nominal. I propose that there be an order of discharge but

that the order be suspended for a period of 6 months.

I certify that this and the nine preceding pages are a true copy of the Reasons for Judgment herein of his Honour Mr. Justice Toohey