Re Mamo, D.A. v. Ex parte Mamo, D.A. [1987] FCA 38

SEUNERAL DIVISION BANKRUPTCY DISTRICT Of THE STATE OF VESTER AUSTRALIA

IN THE FEDERAL COURT OF AUSTRALIA GENERAT, DIVISION BANKRUPTCY DISTRICT Or? THE STATE OF

bankrupt on three occasions, in 1962, 1973 and 1977 respectively.

He was @Gischarged from his first bankruptcy on 4 March

1971 but is undischarged in relation Lo the other two.

He lived for 6 years in New South Wales and then in 1959

Priority creditors received diviltends of 80 cents in

the dollar representing total] divi-lends of $6454.00.

As noted above the bankrupt was discharged from this

In November 1966 he moved to Perth where he was employeu

as a salesman, first by Vox Adeon Nicholsons for three months and

The Official Receiver in Tasmania became avare subsequently of debts incurred by the bankrupt while still under his first bankruptcy. These amounted to $5,700.00 owed to some 53 unsecured creditors. In 1967 the WA Trade Protection Association ayreed to act as his agent so that contributions made by him would be distributed to these creditors. One distribution only was made

ln 1968 he began to carry on business on his own account under the name "Tasman Sales and Distributors". His field of

operation was largely in the Morth Vest of Western Australia.

For the first two years of the business he grossed about

$120.00 per week from its operation and suffered no significant

In 1970 he began working as a commission representative

for manufacturers of clothes, jeweollerv, toys and car accessorics.

It would anpear that this work was done concurrently with the business that he had beyun in 1958. He did not nrcosner however and experienced difficulty 1n recovering commission saia

to he due to him by manufacturers for whom he worked.

in tay 1973 he commenced employnent with the Combined

Insurance Company of America as a commission salesman.

On 10 July 1973, being unable to meet the denands of his

creditors, he filed a debtor's petition and became hankrunt for

tle disclosed in his statoment of affairs, unsecured

Proofs of debt for $4,995.00 were however lodged with the Official Receiver. There were no unrealised assets in the

The Official Receiver in W.A. was not Lhen told by the bankrupt of the debts that he had incurred after his first bankruptcy nor of the Cinancial arrangements with the Trado

A first dividend of 4.86 cents in the dollac and a final

dividend of 1.41 cents in the dollar was david to all nroved

The causes of the bankruptcy were accepted in the report of the Acting Official Peceiver on behalf of the Official Trustee as those stated hy the bankrunt namely "losses sustained while carrying on business as a manufacturers roapresentative, high

statements during the period he was in business on his own

He Lailed however to teep a cash book to record receipts and payments made to him during the operation of his business. Nor did he kee» a ledger recording transactiens with debtors and

creditors and the results of his trading activities,

In 1973 following his second bankruptcy, the bankrupt

was variously employed as an insurance salesman, car salesman and

In 1975 he began to carry on business as a wholesaler and distributor of ethnic clothing, leather goods and fashion wear

Early in 1976 he tried wnsuccesslully to establish this

In June 1976 he began working ag an agent for a conpany

In November 1976 the bankrupt startes: importing clothing on consignment from Thailand. There was no cash commission but he

This venture also was unsuccessful and he subsequently

On 25 February 1977 on advice from his accountant, he filed a debtors petition and became bankrupt for the third time. At this time, pursuant to the provisions of s.J)49(1) as it then stood he would have been entitled to discharye, from his second

The provisions of s.149 as it then stood did not prevent

discharge by operation of law where a bankruptcy occurred within 5

In the event, the Official Recciver as trustee of thu bankrupt's estate filed a notice of objection to lischarge fron

the bankruptcy. That notice was Filet on LY? Vay 1977.

The objection alleged the conduct of the bankrupt as unsatisfactory because he had obtained credit without disclosing

autonatic discharge from the second bankruptecv in 1978.

The causes of the third bankruptcy were said in tho

In the third bankruptcy assets as disclosed in the statement of affairs were $3,356.00 against disclosed liabilities of $14,777.00. Nine proofs of deht were received totalling

The Official Receiver's report discloses that during the

neriod f£rom mid 1975 until 25 February 1977 the bunkrupt ayain

offences against s.269(a) of the Bankruptcy Act which provides:-

(a) either alone or jointly with another person, obtain eredit to the extent of $499.09 or moce from a person without informing that nrerson that he is an undischarged bankrupt."

He was sentenced to six 'nonths imprisonment for each

offence, the terms to be served concurrently. Ho was released

A notice of objection to discharge in respect of the

third bankruptcy was Filed by the Official Receiver as trustee of

On 1 February 1981 amendments to ss.149 and 150 of the Act came into effect. The amendments reduced the time limit for discharge by operation of law from 5 to 3 years. A new nrovision was introduced under which a bankruntcy commencing before discharge from another, would prevent automatic Jischarge from the

Since his release the Bankrupt has held various positions as a salesman, In July 1985 he moved to Tasmania and conducted a market stall in Hobart until November 1985 when he

At the date of hearing of his application for discharge he had no dependents and was in receipt of unemployment benefits,

In an affidavit filed in sunnorl of the applications, the bankrupt who was unable to come to Perth to apnear in person

"That my reason for seeking a discharye is that 1t is now a period of thirteen and nino yoars since my bankruptcies and at which tine I have obeyed all the rules.

1 have also been sent to prison for a neriod of six months with respect to my second hankruptcy and

therefoce believe that I am being punished twice for what I did. I am also now 53 years of aco and will not

As appears from the affidavits of Judith Nay [fvans, creditors in each bankruptcy were sent notice of the applications for discharge by posl on 22 September 1936. ['o creditor sought to

The applications are yoverned by the provisions of ss. 149 and 150 of the Bankruptcy Act 1966 which in the relevant parts

"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 sconer discharged un accordance with section 150, discharged from bankruptcy upon the expiration of three years fron the date of the bankruptcy.

(2) Subject to this section, a »ersen who was an undischarged bankrupt immedratoly before the commencement of this section is, hy force of this section, discharged from hankruptcy -

{a) in a case where the bankrupt became a bankrupt more than 3 years before the commencement of this section - upon the

(b) in any other case, unless sooner discharged in accordance with section 150 = upon the

expiration of 3 years Fron the .late of the bankruptcy.

(3) A bankrupt is net discharged from bankruntcy by virtue of this section if -

(a) at the time when he would heave been so discharged but for this subsection, 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 entcred, or a croditor 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 tine when the bankrupt would have been so discharged but for this subsection;

Bankruptcy Amendment Act 1980 it was provided in effect that the

amended s.149 would apply in relation to objections lodged before its amendment as if they had been entered under paragraph 149(3)(c) of the amended Act. Thus the objections lodged in 1977

and 1980 respectively were effective to prevent automatic

discharge from cach of the two outstanding bankruptcies.

"150(1) A person who becomes, or has before the commencement of this subsection become, a bankrunt may apply to the Court For an order of discharge at any time after ~

{b) the trustee has notified him in writing, that the trustee does not intend to meke an application for his examination under section

(c) the expiration of the neriod of 12 months conmencing on the date of the hankruntcy.

(3) On the hearing of an anplication under this section, the Court shall take into consideration a report in writing by the trustee concerning the bankrupt, his conduct, trade dealinys, property and

affairs both in respect of the pe2rioed hefore and the period after the applicant became a bankrupt. (4) The Court may, in addition -

(a) hear, and put such questions as 1t thinks fit to -

(i) an official receiver; (11) a creditor vhose debt has been proved; (1i1)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 subsection (6) is established -

(b) make an order of discharge hut susaend the operation of the order as the Court thinks proper, cither unconditionally or subject Lo conditions,

{6) The matters upon the establishment of which the Court may exercise the powers specified in subsection (5) are as follows:-

(a) that the bankrupt has omitLled to keen and nreserve such books accounts or records as sufficiently disclose his business transactions and financial position vithin the period of five years imnediately preceding the date on which he becane a bankrupt;

that the bankrupt has been convicted of an offence against this Act or the repealed Act or of any other mffoncee reletod to his bankruptcy.

(7) The Court shall not, under subsection (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 five years commencing on the date of the bankruptcy.

(9) Where none of the matters specified in subsection (6) is established the Court may -

(c) make an order of discharge but susnend the operation of the order as the Court thinks propor either unconditionally or subject to conditions.

(10) The Court shall not, under subsection (9), suspend the operation of an order of discharge beyond the period of Lhree ycars commencing on the date of the bankruptcy.

(11) The Court may at any time while the oneration of an order of discharge (including such an order made hefore the commencement of this subsection) is susnended, rescind or varv the order,

(12) A report referred to in subsection (3) 1s Cor the purposes of this section, prima facie evidence of the statements contained in it."

The Official Trustee's report on the application in relation to the 1973 bankruntecy notes the conduct of the bankrupt since the date of bankruptcy was not satisfactory in that he

contracted numerous debts provable in bankruptcy without declaring

The six convictions under s.269(a) were also mentioned in the report as matters which under $.159(35) "nrovide sufficient reason for the refusal of an order of 'lischarge" in relation to

The wording is perhaps a little inapposite for if any of the matters mentioned in suh-s.150(6) be established the court must either refuse the anplication for discharge or make such an

order but suspend its operation either unconditionally or subject

"The conduct of the bankrupt prior to the date of bankruptcy was not satisfactory in that he contracted numerous debts provable in bankruptcy without Gisclosing that he was an undischarged bankrupt.

The conduct of the bankrupt after the date of bankruptcy was not satisfactory in that he failed to disclose realisable assets to the Trustee."

sub-s.150(6) which provide sufficient reason for the refusal or

In Re Zion: Ex parte The Bankrupt (Unreported snithors

J. 26/9/86) Smithers J. said@é at ».3 of his reasons for judgment:-

"In my view it 18 the policy of the ley that bankruntcy should in most cases come to an end at 3 years and when there is an objection at the end of 5 years fron the decree For sequestration of the estatc, hut that in a

case where public interest so requires the discharge may be delayed or made conditional according to the requirenents 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 o£ the bankrupt indicates that the return of the bankrupt to the commercial world in full freedom might involve unacceptahle risk to persons likely to be engaged in commercial relations with him in the future. In other words, it is for the anplicant to

show that balancing the policy of the law in favour of the return to commercial life of a bankrunt against the

dangers that might accrue to the public from full commercial capacity of the applicant, it 18 appropriate that the discharge be granted."

His Honour cited the following passage from tho judgment

of Woodward J, in Re Maher (1985) G61 ALR 592 at 598:-

"An application for discharge is nevor treated lightly by the Court. As with the granting of a sequestration order, an application for discharge involves looking beyond the interests of the applicant and his or hor creditors to considering both the interests of the public and commercial morality."

I respectfully adopt the above statements which indicate

the general approach to be taken in relation to applications for

There are two outstanding bankruptcies an respect of which

discharye was sought. The bankrupt has sulfered three

bankruptcies. He has been convicted of offences against the Act

Nis conduct with respect to the keeping of business records and with respect to his obliaations to make full Yisclosure to his trustee in bankruptcy is onen to serious

These factors weigh against tischarge, although 1t must be accepted that thoir weight may diminish with the passaye of

"Tt appears to me that the policy of the law is based upon the notion that, save in exceptional cases, 1t is beneficial both to the interests of the hankrupt and those of the community that the bankrupt will return to commercial life earlier or later according to the circumstances. To my mind it is certainly not in accordance with the policy of the law that a person whose bankruptcy was brought about Ilby commercial reverses not due to misconduct or dishonesty should remain undischarged forever, even if the deficiency be large. And I think the same is truce even if during years of bankruptcy the bankrupt has fFa1led to measure up to the requirements of propriety in certain respects,"

bankrupt were also seen in that case by his Honour as Factors

The fact of 3 successive bankruptcies weighs particularly heavily against the grant of Jischarge in this case even though Lhey were spread over a veriod of 15 years Erom 1962 to 1977 and even though some 10 years has clepsed since the last

In Re Hardy (1979) 30 cBC (IS) 95, Anderson J, considered an application for discharge from a third bankruptcy

The two prior bankruptcies had commenced on 30 July 195°

In respect of those the bankrunt had bean discharged. At

"In my view a third bankruptcy is one too many. The well recognised principle underlying bankruptcy law is that a debtor may, in proper circumstances, be relieved of his obligations and enabled Lo re-establish himself

financially. I do not consider that he should be enabled to do so upon a recurring basis. The process of the Act and of the Court should not be considered to bestow a licence to incur debts and be purged of them at

In this case I am obliged to consider two applications for discharge. They are however interdenendent as the third bankruptcy Eorms an element of the nost Ytankruptcy conduct in

1. The passage of Eime since he hecans Lankecupt - 13 years and 10 years respectively.

2. lis age by reasen of which he will not reneat his previous mistakes.

3. The continuation of his bankruptcy would constitute a punishment by reason of misconduct for which he has already been imprisoned,

The bankrupt was unable to bo present in person on the application as he is residing in New South Vales, His affidavit gives no clue to his plans in the event of a discharge. Given his present reduced circumstances, his ability to finance himself

adequately into any line of business must he questionable.

His history indicates that over an extoneed period of time he represented a hazard to those who were nrepared to advance

None of the creditors has objected to the discharge but given the lapse of time, it is hardly surprising that they would find better things to do than involve themselves in this

Plainly, they do not stand to lose or gain according to

whether the bankrupt achieves his discharge or otherwise.

It is in the ond the public interest Lhat 1s paramount

The general policy of the law as enunciated by Smithers J. and cited above, contemplates that save in exceptional circumstances, the bankrupt will eventually return Lo commercial

In my opinion however the Court should not readily accede to the submission that a hankrupt with a history of the

kind now before me, could rely solely upon that general policy and

the passage of time to justify his return to commercial life,

In Re Mallan (1975) 25 VLR 29, Lhe applicant Cor discharge was 75 years of age and some 10 vears had clapsed since his bankruptcy commenced. There was no question of multiple

bankruptcies but his past conduct was described in the reasons for

In the event White J. ordered discharge suspended for 12 months on conditions effectively prohibitiny the bankrupt From

entering into any Form of business activity directly or indirectly

In my opinion the history of the bankrupt in this case

demonstrated an unfitness for commercial activity that is unlikely

to have been remedied by the mere advancement of his years.

In my opinion an unconditional suspended discharye in

relation to the 1973 bankruptcy 1s not warranted on the naterial

'tor, if I were minded to ordor a suspended discharge on

conditions, do I have sufficient material on which to fornulat.

any condition less than a total prohibition on involvement in

It does seom likely however that the Rankrupt, saying as he does in his affidavit that he "...will not make the sane

mistakes again" does contemplate ai return to some forn of

As to the 1977 bankruptcy, the Court can only dispose of

the application under s.150(9). There is no basis therefore to

make an order for a suspended discharge, more than 3 years having

I am not prepared on the material before me to order a discharge in respect o€ that

These applications were initially brought on before

Eiled although there was a letter on file from the bankrupt

Toohey J. on that date directed the annlicant no later than ] Recember 1986 to Lile and serve on the Official Receiver a

copy of any affidavit he wished to use in support of his

The affidavit as Filed, disclosed reasons for seekine discharge which were in substance those set out in the earlier

letter and their substance has already been tiscusse:

In my opinion the hest course For mo to take 216 to Gismiss the applications for discharge. Tn doing so, I acennt that it 16 open to the applicant to make fresh applications on

Without wishing in any way to pre-emst tho discretion of any future Court I make the ocbservalion thal the material lo be

adduced in support of such an application will probably need to be more extensive than that so far presented, particularly in relation to the assertion that the anplicant has learnt from his

mistakes and as to his intentions with respect to future

I certify this and the preceding cighteen (18) pages to be a true copy of the Reasons for Decisions of his Honour Nr Justice French.