Re Donald Albert Mamo Ex Parte: Donald Albert Mamo [1987] FCA 31 (12 February 1987)

FEDERAL COURT OF AUSTRALIA

Re: DONALD ALBERT MAMO
Ex Parte: DONALD ALBERT MAMO
Nos. 198 of 1973 and 27 of 1977
Bankruptcy Act

COURT

IN THE FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
French J.

CATCHWORDS

Bankruptcy Act 1966 - application for discharge - applicant three times bankrupt - 1966, 1973, 1977 - discharged from 1966 bankruptcy - no objection by creditors to application - considerable lapse of time - applicant now aged 53 - general policy to allow discharge - consideration of public interest paramount - lack of business acumen - failure to keep business records - failure to make full disclosure to trustee - unsatisfactory conduct whilst bankrupt - convictions under s.269(a) - imprisonment - application dismissed.

Bankruptcy Act 1966 ss.149, 150, s.269(a)

Re Zion : Ex parte The Bankrupt (Unrep. Smithers J. 26/9/80)

Re Maher (1985) 61 ALR 592

Re Hardy (1979) 30 CBC (NS) 95

Re Mallan (1975) 25 FLR 20

HEARING

PERTH
12:2:1987

ORDER

The Applications are dismissed.

Note: Settlement and entry of orders is dealt

with in Rule 124 of the Bankruptcy Rules

DECISION

Donald Albert Mamo ("the bankrupt") has been made bankrupt on three occasions, in 1962, 1973 and 1977 respectively.

2. He was discharged from his first bankruptcy on 4 March 1971 but is undischarged in relation to the other two.

3. He now applies to be discharged from both.

4. The bankrupt is 53 years of age. He migrated to Australia from Egypt in 1952.

5. He lived for 6 years in New South Wales and then in 1959 moved to Tasmania where he lived until 1966.

6. On 2 April 1962 he filed a debtors petition. His unsecured debts then amounted to about $5,000.00.

7. Priority creditors received dividends of 80 cents in the dollar representing total dividends of $664.00.

8. As noted above the bankrupt was discharged from this bankruptcy on 4 March 1971.

9. In November 1966 he moved to Perth where he was employed as a salesman, first by Vox Adeon Nicholsons for three months and then by Archie Martin & Sons for some two years.

10. The Official Receiver in Tasmania became aware subsequently of debts incurred by the bankrupt while still under his first bankruptcy. These amounted to $5,700.00 owed to some 58 unsecured creditors. In 1967 the WA Trade Protection Association agreed to act as his agent so that contributions made by him would be distributed to these creditors. One distribution only was made representing 8 cents in the dollar.

11. In 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 North West of Western Australia.

12. For the first two years of the business he grossed about $120.00 per week from its operation and suffered no significant financial problems.

13. In 1970 he began working as a commission representative for manufacturers of clothes, jewellery, toys and car accessories.

14. It would appear that this work was done concurrently with the business that he had begun in 1968. He did not prosper however and experienced difficulty in recovering commission said to be due to him by manufacturers for whom he worked.

15. In May 1973 he commenced employment with the Combined Insurance Company of America as a commission salesman.

16. On 10 July 1973, being unable to meet the demands of his creditors, he filed a debtor's petition and became bankrupt for the second time.

17. He disclosed in his statement of affairs, unsecured debts totalling $2,871.00.

18. Proofs of debt for $4,995.00 were however lodged with the Official Receiver. There were no unrealised assets in the estate and the bankrupt contributed $520.00.

19. The Official Receiver in W.A. was not then told by the bankrupt of the debts that he had incurred after his first bankruptcy nor of the financial arrangements with the Trade Protection Association.

20. A first dividend of 4.86 cents in the dollar and a final dividend of 1.41 cents in the dollar was paid to all proved creditors.

21. The causes of the bankruptcy were accepted in the report of the Acting Official Receiver on behalf of the Official Trustee as those stated by the bankrupt namely "losses sustained while carrying on business as a manufacturers representative, high overheads and the failure to receive commission".

22. The Acting Official Receiver also attributed the bankruptcy to lack of business acumen.

23. The bankrupt had maintained a cheque book and bank statements during the period he was in business on his own account.

24. He failed however to keep a cash book to record receipts and payments made to him during the operation of his business. Nor did he keep a ledger recording transactions with debtors and creditors and the results of his trading activities.

25. In 1973 following his second bankruptcy, the bankrupt was variously employed as an insurance salesman, car salesman and manufacturers' agent.

26. In 1975 he began to carry on business as a wholesaler and distributor of ethnic clothing, leather goods and fashion wear with goods purchased on a consignment only basis.

27. Early in 1976 he tried unsuccessfully to establish this venture in the North West of Western Australia.

28. In June 1976 he began working as an agent for a company called Westside Marketing Pty Ltd.

29. In November 1976 the bankrupt started importing clothing on consignment from Thailand. There was no cash commission but he received garments for sale for his own benefit.

30. This venture also was unsuccessful and he subsequently reverted to working as a manufacturer's agent.

31. 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.149(1) as it then stood he would have been entitled to discharge, from his second bankruptcy by operation of law in 1978.

32. The provisions of s.149 as it then stood did not prevent discharge by operation of law where a bankruptcy occurred within 5 years of a prior bankruptcy.

33. In the event, the Official Receiver as trustee of the bankrupt's estate filed a notice of objection to discharge from the bankruptcy. That notice was filed on 18 May 1977.

34. The objection alleged the conduct of the bankrupt as unsatisfactory because he had obtained credit without disclosing that he was an undischarged bankrupt.

35. The filing of the objection under s.149 prevented automatic discharge from the second bankruptcy in 1978.

36. The causes of the third bankruptcy were said in the Official Receiver's report to be:-

"(a) Lack of suitable distribution outlets.

(b) Inadequate profit margin.

(c) Excessive overheads.

(d) Lack of sufficient initial working capital.

(e) Lack of business acumen."

37. 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 debt were received totalling $11,179.00. Assets realised amounted to $2,553.00.

38. The Official Receiver's report discloses that during the period from mid 1975 until 25 February 1977 the bankrupt again failed to keep a cash book and ledger.

39. On 25 April 1978 the bankrupt was convicted of six offences against s.269(a) of the Bankruptcy Act which provides:-

"A bankrupt shall not-

(a) either alone or jointly with another person, obtain
credit to the extent of $500.00 or more from a
person without informing that person that he is an
undischarged bankrupt."

40. He was sentenced to six months imprisonment for each offence, the terms to be served concurrently. He was released from prison in September 1978.

41. A notice of objection to discharge in respect of the third bankruptcy was filed by the Official Receiver as trustee of the estate on 6 November 1980.

42. 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 provision was introduced under which a bankruptcy commencing before discharge from another, would prevent automatic discharge from the prior bankruptcy. (s.149(3)(b)).

43. 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 became unemployed.

44. At the date of hearing of his application for discharge he had no dependents and was in receipt of unemployment benefits, namely $150.00 per week.

45. In an affidavit filed in support of the applications, the bankrupt who was unable to come to Perth to appear in person said:-

"That my reason for seeking a discharge is that it is
now a period of thirteen and nine years since my
bankruptcies and at which time I have obeyed all the
rules.

I have also been sent to prison for a period of six
months with respect to my second bankruptcy and
therefore believe that I am being punished twice for
what I did. I am also now 53 years of age and will not
make the same mistakes again."

46. As appears from the affidavits of Judith May Evans, creditors in each bankruptcy were sent notice of the applications for discharge by post on 22 September 1986. No creditor sought to be heard on the applications.

47. 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 three 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 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 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 subsection;

.
.
."

48. By a transitional provision namely s.72(2) of the 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 each of the two outstanding bankruptcies.

"150(1) A person who becomes, or has before the
commencement of this subsection 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 subsection (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
subsection (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 five years immediately
preceding the date on which he became a
bankrupt;

.
.
.

(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 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 -

(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 subsection (9),
suspend the operation of an order of discharge
beyond the period of three 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 subsection) is
suspended, rescind or vary the order.

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

49. The Official Trustee's report on the application in relation to the 1973 bankruptcy 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 he was an undischarged bankrupt.

50. The six convictions under s.269(a) were also mentioned in the report as matters which under s.150(6) "provide sufficient reason for the refusal of an order of discharge" in relation to that bankruptcy.

51. The wording is perhaps a little inapposite for if any of the matters mentioned in sub-s.150(6) be established the court must either refuse the application for discharge or make such an order but suspend its operation either unconditionally or subject to conditions.

52. In respect of the 1977 bankruptcy, the Official Trustee's report observed:-

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

53. It noted however that there are no matters under sub-s.150(6) which provide sufficient reason for the refusal or suspension of an order of discharge.

54. In Re Zion: Ex parte The Bankrupt (Unreported Smithers J. 26/9/86) Smithers J. said at p 3 of his reasons for judgment:-

"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."

55. His Honour cited the following passage from the judgment of Woodward J. in Re Maher (1985) 61 ALR 592 at 598:-

"An application for discharge is never 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 her
creditors to considering both the interests of the
public and commercial morality."

56. I respectfully adopt the above statements which indicate the general approach to be taken in relation to applications for discharge.

57. The present applications are not straight forward. There are two outstanding bankruptcies in respect of which discharge was sought. The bankrupt has suffered three bankruptcies. He has been convicted of offences against the Act for which he served a term of imprisonment.

58. His conduct with respect to the keeping of business records and with respect to his obligations to make full disclosure to his trustee in bankruptcy is open to serious criticism.

59. These factors weigh against discharge, although it must be accepted that their weight may diminish with the passage of time.

60. As Smithers J. said in the Zion case at page 70:-

"It appears to me that the policy of the law is based
upon the notion that, save in exceptional cases, it is
beneficial both to the interests of the bankrupt 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 by commercial
reverses not due to misconduct or dishonesty should
remain undischarged forever, even if the deficiency be
large. And I think the same is true even if during
years of bankruptcy the bankrupt has failed to measure
up to the requirements of propriety in certain
respects."

61. The duration of the bankruptcy and the age of the bankrupt were also seen in that case by his Honour as factors relevant to the application for discharge.

62. The fact of 3 successive bankruptcies weighs particularly heavily against the grant of discharge in this case even though they were spread over a period of 15 years from 1962 to 1977 and even though some 10 years has elapsed since the last of them commenced.

63. In Re Hardy (1979) 30 CBC (NS) 95, Anderson J. considered an application for discharge from a third bankruptcy which had commenced on 17 August 1977.

64. The two prior bankruptcies had commenced on 30 July 1958 and 27 June 1974 respectively.

65. In respect of those the bankrupt had been discharged. At 96 Anderson J. said:-

"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 to 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
periodic intervals."

66. In this case I am obliged to consider two applications for discharge. They are however interdependent as the third bankruptcy forms an element of the post bankruptcy conduct in respect of the second.

67. In essence the bankrupt advances in support of his application the following considerations:-

1. The passage of time since he became bankrupt - 13
years and 10 years respectively.

2. His age by reason of which he will not repeat his
previous mistakes.

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

68. The bankrupt was unable to be present in person on the application as he is residing in New South Wales. 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 be questionable.

69. His history indicates that over an extended period of time he represented a hazard to those who were prepared to advance him credit.

70. 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 application.

71. Plainly, they do not stand to lose or gain according to whether the bankrupt achieves his discharge or otherwise.

72. It is in the end the public interest that is paramount in this case.

73. 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 to commercial life.

74. In my opinion however the Court should not readily accede to the submission that a bankrupt 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.

75. In Re Mallan (1975) 25 FLR 20, the applicant for discharge was 75 years of age and some 10 years had elapsed since his bankruptcy commenced. There was no question of multiple bankruptcies but his past conduct was described in the reasons for judgment as "reprehensible".

76. In the event White J. ordered discharge suspended for 12 months on conditions effectively prohibiting the bankrupt from entering into any form of business activity directly or indirectly or by way of advice to others.

77. 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.

78. In my opinion an unconditional suspended discharge in relation to the 1973 bankruptcy is not warranted on the material presently before me.

79. Nor, if I were minded to order a suspended discharge on conditions, do I have sufficient material on which to formulate any condition less than a total prohibition on involvement in business activities.

80. It does seem likely however that the Bankrupt, saying as he does in his affidavit that he "...will not make the same mistakes again" does contemplate a return to some form of commercial activity.

81. 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 elapsed since the date of the bankruptcy. I am not prepared on the material before me to order a discharge in respect of that bankruptcy.

82. These applications were initially brought on before Toohey J. on 27 October 1986. No affidavit material was then filed although there was a letter on file from the bankrupt setting out his reasons for seeking discharge.

83. Toohey J. on that date directed the applicant no later than 1 December 1986 to file and serve on the Official Receiver a copy of any affidavit he wished to use in support of his applications.

84. The affidavit as filed, disclosed reasons for seeking discharge which were in substance those set out in the earlier letter and their substance has already been discussed.

85. In my opinion the best course for me to take is to dismiss the applications for discharge. In doing so, I accept that it is open to the applicant to make fresh applications on further evidence at some suitable time.

86. Without wishing in any way to pre-empt the discretion of any future Court I make the observation that the material to 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 applicant has learnt from his mistakes and as to his intentions with respect to future commercial activities.

87. The applications are dismissed.