Re Klaas Bontes Ex Parte: Klaas Bontes [1987] FCA 33 (12 February 1987)

FEDERAL COURT OF AUSTRALIA

Re: KLAAS BONTES
Ex Parte: KLAAS BONTES
No. 361 of 1979 and No. 535 of 1983
Bankruptcy Act 1966

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 s.149(3) - two bankruptcies 1979 and 1983 - s.269 conviction - imprisonment 1982 - no subsequent unsatisfactory conduct - no opposition to application - applicant permanently disabled - invalid pensioner - desire to be free of stigma - insufficient reasons to justify discharge - public interest and commercial morality dominant considerations - public interest protected by conditional suspended discharge of first bankruptcy.

Bankruptcy Act 1966 s.149(3), s.150, s.269.

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

Re: Maher & Anor (1985) 61 ALR 592

Re: Tarvydas; Ex parte Tarvydas (Unrep. Toohey J. 25/11/86)

HEARING

PERTH
12:2:1987

Mr F.D. O'Driscoll and Mr S.F. Robson for the Official Receiver

ORDER

The Bankrupt is discharged but the operation of the order is suspended subject to the following condition until 12 February 1989.

The condition is that the Bankrupt undertake to the Court not to carry on business on his own account or in partnership, execute any guarantee, or hold office as a director or secretary of a company until 12 February 1992.

The application for discharge is dismissed.

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

DECISION

Klaas Bontes has been made bankrupt twice, on 14 September 1979 and 9 August 1983.

2. By reason of the provisions of s.149(3) of the Bankruptcy Act he remains a bankrupt until discharged by order of this Court.

3. He now applies for discharge from both bankruptcies.

4. The bankrupt was born in Holland and came to Western Australia in 1949. In February 1957 he returned to Holland. In 1976 he came back to Western Australia and began work as a product manager for a building company until September 1977.

5. He then began to carry on business buying and selling diamonds under the name "Australian Diamond Holdings". Sales were made on consignment. At about that time he also went into partnership with his son to carry on a business known as Fast Printing Duplicating Services. The partnership entered a hire purchase agreement with Alliance Acceptance Corporation for the purchase of printing equipment for about $8,000.

6. The business was said to have been carried on largely to meet the printing requirements of Australian Diamond Holdings.

7. The bankrupt later formed two other short lived businesses under the names "Earth Base One" (selling motivational tapes) and "Rapid Mail Orders".

8. In May 1978 the Diamond Corporation of Australia Pty Ltd was incorporated. The bankrupt and one L.H. Steer were the directors and principal shareholders.

9. The operations of the company were investigated by the Department of Consumer Affairs in Western Australia. There was attendant bad publicity involving the bankrupt personally and he resigned as a director in May 1979. The company then had liabilities in excess of $180,000.00 and few assets.

10. Legal action was taken against the bankrupt by creditors, in particular Lombard House Australia (now National Westminster Finance) in relation to a shortfall after repossession of a Gemini Sedan and by Alliance Acceptance Corporation.

11. On 14 September 1979 the bankrupt filed a debtor's petition.

12. Seventeen proofs of debt for $100,783.00 were admitted to rank for dividends in the estate including a claim for $78,088.00 from the liquidator of the Diamond Corporation of Australia Pty Ltd.

13. This claim was for goods and services provided to the bankrupt and also for an amount due for unpaid shares to the value of $76,000 which had been issued to him.

14. The assets of the estate realised $1,500.

15. There were sufficient funds to enable payment in full of the official fees and costs of administration. No dividends are expected to be paid.

16. In 1980 the bankrupt went into a partnership with three others including his son Stephen Ross Bontes. The partnership commenced operating a business of funeral directors.

17. The bankrupt was the general manager of the business. Capital was introduced into it by other partners who were aware of his bankruptcy.

18. Subsequently he was convicted of six offences against s.269 of the Bankruptcy Act.

19. On 8 June 1982 he was sentenced to 18 months imprisonment with a minimum terms of 6 months to be served before eligibility for parole.

20. An objection was lodged on 13 September 1982 against the statutory discharge. Nevertheless the Bankrupt applied for discharge on 19 October 1982. This was refused by the Court on 14 December 1982.

21. The funeral director business was sold. The agreement for sale included a condition that the purchaser would pay the outstanding debts of the business. This was not done and on 9 August 1983 upon a creditor's petition filed by the Commissioner of Taxation the bankrupt was made bankrupt for the second time.

22. Mr S.F. Robson was appointed as trustee of the estate.

23. Realisation of assets yielded $614.35 against a proof of debt in the sum of $20,921.50 for unremitted group tax.

24. Official fees and costs were paid in part from funds received by the trustee.

25. At the date of second bankruptcy, the bankrupt was 50 years of age and unemployed. He is now in receipt of an invalid pension.

26. The trustee has indicated in his report that there has been no reason why the conduct of the bankrupt since his second bankruptcy should be regarded as unsatisfactory.

27. Creditors have been notified of the applications but no response has been elicited.

28. In affidavits in support of his application for discharge the bankrupt said he is currently on an invalid pension with a disability of a permanent nature and there is no likelihood he would be able to obtain or accept remunerative employment in the future.

29. He is not, he said, in a position to consider any business or private venture now or in the future which might conceivably require that he apply for any credit or which could lead to any possibility of a recurrence of the circumstances which lead to his bankruptcy.

30. He also referred to discharge as enabling him to lead "a normal life devoid from the stigma of being an undischarged bankrupt".

31. In oral evidence before me, he said that although barred by his physical condition, namely degenerative spinal arthritis, from renumerative employment he was able to engage in community work.

32. He said he had been approached by the Rocky Bay Village organisation to assist with its work.

33. The Arthritis Foundation had indicated that it might be able to use his services on a part time basis. These services he said, would not be remunerated but would give him direction and something to do.

34. Asked how his bankruptcy would interfere with such activities he said:-

The very fact that I have, naturally become very wary of
the provisions of the Bankruptcy Act which prohibit one
from participating in the management or control - or
whatever - of any venture - it would appear - that I
have, perhaps a little psychotically declined any and
all invitations or opportunities to make any kind of a
decision in any area."

35. He could not say that he had received any firm offer of community work.

36. In relation to the offences for which he was convicted, he said they were "committed innocently" and that he simply did not know that he was breaking the law.

37. 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;

.

.

."

"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 section) 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."

38. By reason of sub-s.150(5) no immediate discharge order is possible in relation to the first bankruptcy. The best the bankrupt can hope for in that regard is an unconditional discharge suspended for a period to be specified by the Court.

39. Nor in my opinion would it be appropriate in any but the most exceptional cases, to grant a discharge from a second bankruptcy while a first bankruptcy is subsisting.

40. There is however, no reason why the Court cannot consider both applications concurrently.

41. The approach to be adopted by the Court in dealing with applications for discharge has been expounded in many decisions.

42. In my respectful opinion the following passages from the judgment of Smithers J. in Re: Zion; Ex parte The Bankrupt (Unreported Smithers J. 26/9/86) and Woodward J. in Re: Maher & Anor (1985) 61 ALR 592 are helpful statements of the relevant principles.

43. Smithers J. in Re Zion said at page 3:-

"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."

44. Sir Edward Woodward in Re : Maher & Anor (supra) also said:-

"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."

45. In this case the two bankruptcies are comparatively recent, the second having commenced just over 3 years ago.

46. It is just under 5 years ago that the Bankrupt was subjected to a significant criminal penalty for 6 offences against s.269 of the Act.

47. His reasons for seeking discharge at this time are, insofar as they relate to a desire to do community work free of apprehension about the restrictions imposed by the Bankruptcy Act, somewhat unconvincing.

48. Insofar as he wishes to be free of the stigma of bankruptcy, that is a factor which while not of itself sufficient to justify a discharge is a relevant consideration - Re : Tarvydas Ex Parte Tarvydas (Unreported Toohey J. 25/11/86).

49. There being no opposition to the applications in this case, it is one in which the public interest and commercial morality are the dominant considerations in determining their disposal. Recognition of the public interest also involves a recognition of the policy of the Bankruptcy Act as enunciated by Smithers J. in the Zion case.

50. As no matter arises under s.150(6) in respect of the second bankruptcy, the power of the Court to deal with the applications in respect to that Act is to be found in s.150(9).

51. But the power of the Court to suspend an order of discharge in such a case is limited to a period of suspension expiring at the end of 3 years commencing on the date of the bankruptcy (s.150(10)).

52. In the present case that period expired on 9 August 1986.

53. No such limit however applies to the power of the Court to suspend and impose conditions in relation to the first bankruptcy.

54. In my opinion the public interest in relation to the first bankruptcy will be protected if the applicant is given a suspended discharge conditional upon his continuing exclusion from commercial activity.

55. Such conditions may operate beyond the period of the suspension.

56. Having regard to the serious nature of the misconduct which led to the bankrupt's conviction and imprisonment the suspension should be for a period of 2 years.

57. In relation to the first bankruptcy the order therefore will be:-

1. The Bankrupt is discharged but the operation of the
order is suspended subject to the following
condition until 12 February 1989.

2. The condition is that the Bankrupt undertake to the
Court not to carry on business on his own account
or in partnership, execute any guarantee, or hold
office as a director or secretary of a company
until 12 February 1992.

58. The effect of that order is that if the undertaking is given then the Bankrupt will be discharged from his first bankruptcy in 2 years time, but will be bound by the condition for 3 years after the date of discharge.

59. As to the second bankruptcy no suspended discharge is possible now. It would, in my opinion, be inappropriate to order a discharge for the second bankruptcy at a time when the first bankruptcy still subsists. The second bankruptcy will therefore continue. No automatic discharge is possible in respect of it so it will be necessary for the applicant to reapply for a discharge from that bankruptcy no earlier than 2 years from today's date when the discharge of the first bankruptcy becomes effectual.

60. So my order on the application for discharge from the second bankruptcy is that the application will be dismissed.