McKelvy v Ministry of Business Innovation and Employment [2014] NZHC 2815 (13 November 2014)

Last Updated: 8 December 2014

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2004-419-1214 [2014] NZHC 2815

BETWEEN	MILES JOHN MCKELVY Applicant
AND	MINISTRY OF BUSINESS INNOVATION AND EMPLOYMENT Respondent

Hearing:	27 August 2014 and "on papers" 6 November 2014
Appearances:	Mr M Meyrick for Applicant Mr T C Tran for Respondent
Judgment:	13 November 2014

_{JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE}

This judgment was delivered by me on

13.11.14 at 4.30 p.m., pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

_{Date...............}

MCKELVY v MINISTRY OF BUSINES INNOVATION AND EMPLOYMENT [2014] NZHC 2815 [13

November 2014]

The background

[1] Mr McKelvy was adjudicated bankrupt on 8 November 2004. He became eligible for discharge on 8 November 2007 but following an objection from the Official Assignee, Heath J, in a decision dated 3 February 2009, declined to order a discharge under s 110 of the Insolvency Act 1967.¹ I interpolate that the 1967 Act has since been superseded but it was common ground that the hearing before Heath J, as it was in the proceedings which I have to determine, that the earlier Act

continues to apply.

[2] Heath J directed that the earliest date when Mr McKelvy would be able to apply for discharge again would be 3 February 2012.

[3] Mr McKelvy has now made a further application and after his requisite public examination and hearing submissions I reserved my decision.

[4] This is the second of two bankruptcies of Mr McKelvy. He was bankrupted on 4 December 1995 and was discharged from that status on for December 1998.

[5] During the course of his first bankruptcy Mr McKelvy committed offences of dishonesty in 1996 and 1998.

[6] Subsequently Mr McKelvy was a leading actor in a large-scale fraudulent enterprise carried on in the Waikato-Bay of Plenty which was part of an investigation under the codename “Operation All Sorts”. He was subsequently tried and convicted and sentenced to an effective term of imprisonment of eight years with

a minimum non-parole period of five years.² The sentencing Judge, Heath J,

described his conduct as “predatory” and in part directed to vulnerable members of the community. The victims of the offending suffered major financial losses. The effects on the victims were particularly severe because of their limited financial resources. In some cases, because of the age of the victims, they would have little opportunity to recover lost ground financially before they retired. The other broad

_{group of victims were finance companies.}

¹ _{Official Assignee v McKelvy HC Hamilton CIV-2004-419-1214, 3 February 2009.}

² R v McKelvy HC Hamilton CRI-2005-419-122, 7 July 2006.

[7] In his decision on the previous application for discharge, the Judge referred to concerns about what had happened to the amount of approximately $1.4 million which the Judge recorded Mr McKelvy accepted was the approximate loss suffered by the victims. The Judge noted that no assets of any value had been disclosed to or realised by the Assignee. His Honour also referred to the fact that it would be in Mr McKelvy’s interests to assist the Assignee and noted that voluntary provision of information that would assist in this undertaking would no doubt have a bearing on the Court’s response to any further application for discharge.

[8] The Judge also recorded that he had asked Mr McKelvy some questions about what had become of the money that he and his associates obtained as a result of frauds that they had perpetrated on individuals and finance companies. He said that Mr McKelvy’s response had in substance been that the money was largely wasted on subsequent transactions that were intended to defraud others but which did not succeed and in the disbursement of money to other offenders involved in the fraudulent activity.

[9] Since the last application for discharge was made, Mr McKelvy has been released from prison. He is living in Auckland and works in machinery and equipment maintenance.

[10] Mr McKelvy takes some issue with the Official Assignee on the question of the extent of the losses that followed from his offending. He accepts that his offending caused substantial loss to its victims.

[11] It was expected that Mr McKelvy would file an affidavit commenting on matters such as his personal circumstances. Late application was made for leave to file such an affidavit and I directed that any affidavit was to be filed and served by 5 pm on 22 August 2014, failing which any affidavit would not be read. Mr McKelvy failed to meet that deadline and as a result there is no affidavit before the Court dealing with his current circumstances.

[12] There does not seem to be any dispute, though, about certain limited factual matters which Mr Meyrick, counsel for the bankrupt, has placed before the Court.

He advises that Mr McKelvy has married. Mr Meyrick submitted that Mr McKelvy has been with the same employer for five years and is well regarded.

Principles and statutory context

[13] The function of the Court when considering an application for discharge is given definition by the matters on which the Official Assignee is required to report to the Court under s 109(2) of the Act. That requires the Assignee to report as to the affairs of the bankrupt, the causes of his bankruptcy, the manner in which the bankrupt has performed the duties imposed on him under the Act or obeyed the orders of the Court and his conduct both before and after the bankruptcy as well as any other fact, matter or circumstance that would assist the Court in making its decision.

[14] The principles were reviewed in Re Anderson, a decision of Penlington J.³

He noted the judgment of Vaughan Williams LJ in Re Gaskell where the consequence of bankruptcy was stated to be that the bankrupt was required to give up the whole of his property and in return would be a free man again able to earn his livelihood.⁴ The case also noted that there may be circumstances where the bankrupt should not be free immediately and might be required to pass through a period of probation and that “theoretically there may be cases in which he ought not to be free at all”.⁵

[15] Penlington J also noted the requirement for the bankrupt to:⁶

...do the utmost in his power to aid in the realisation of his property and the distribution of the proceeds amongst his creditors. To this end, he is required to make full disclosure of his property, his creditors and his debtors, and give every assistance to the Assignee in the administration of his estate.

[16] Penlington J referred with approval to a discussion paper of the Australian

Law Reform Commission which made reference to the nature of the process and objectives of granting a discharge:⁷

³ _{Re Anderson HC Hamilton B213/89, 14 April 1992.}

⁴ _{Re Gaskell [1904] 2 KB 478 at 482.}

⁵ _{At 482.}

⁶ _{Re Anderson, above n 3, at 17.}

⁷ Australian Law Reform Commission Discussion Paper Number 32: General Insolvency Inquiry

...The return of the bankrupt to full commercial capability can be delayed. Conditions may be attached to discharge. Discharge might be prevented altogether where the continuing conduct of the bankrupt suggests a continued risk to the community.

Discharge thus also serves the function of regulating commercial behaviour. Behaviour before bankruptcy is relevant to discharge by advancing or withholding discharge consequent on that behaviour. Behaviour during bankruptcy is relevant, by providing the prospect of an early discharge or by imposing a sanction of suspending or restricting discharge. Discharge is also used as a means of influencing behaviour after discharge. If there is a risk that the bankrupt might repeat undesirable commercial behaviour, discharge may be granted subject to conditions that restrict the person’s commercial conduct (for example, by prohibiting the bankrupt from carrying on a business). A secondary aspect of this regulatory role is the concern to protect the commercial community from such undesirable behaviour.

[17] In the same case, the Judge followed the Australian decision of Re Reilly ex parte Debtor in which Lockhart J said:⁸

In considering whether a bankrupt should receive a discharge it has been laid down repeatedly that the court must have regard not only to the interests of the bankrupt and his creditors but also to the interests of the public and of commercial morality. In the exercise of its discretion the court must also consider the conduct of the bankrupt relevant to his bankruptcy.

[18] Penlington J accepted that the issue of commercial morality was a relevant factor to take into account. His view was that commercial morality involves conduct on the part of the bankrupt which involved fraud and dishonesty. Recklessness and negligence, if gross, could be seen to come within that category. Another formulation of the same idea noted in the judgment is that view of the Australian Law Reform Committee discussion paper that “undesirable commercial behaviour” was a factor to be taken into account.

[19] I also agree with the observations in Re Anderson that the legislature intended that after a period of three years in the normal case, a bankrupt should be discharged and that it is for the Assignee after the date of automatic entitlement to discharge to

_{justify his/her position in opposing a discharge.}⁹

_{(ALRC 1987) quoted in Re Anderson, above n 3, at 17.}

8. Re Reilly ex parte Debtor [1979] 36 FLR 268 at 278, [1979] 21 ALR 357 at 365-366, quoted in Re Anderson, above n 3, at 21.

⁹ Re Anderson, above n 3, at 19.

[20] In ASB Bank v Hogg the Court of Appeal observed that in providing for automatic discharge after three years, the legislation recognised that it was not in the public interest that the bankruptcy should endure indefinitely.¹⁰ It also concluded that in making a decision as to whether there should be a discharge, guidance is provided by the list of factors set out in s 109(2) which lists the matters on which the Assignee is to report to the High Court in such a case.¹¹ The Court is to consider the Assignee’s report as to the affairs of the bankrupt, the cause of the bankruptcy, the manner in which the bankrupt has performed the duties imposed on him or her under the Act and his or her conduct both before and after the bankruptcy, and also any other fact, matter or circumstance that would assist the Court in making its decision:¹²

...Clearly the Court apprised of the matter will consider the legitimate interests of the bankrupt, the creditors and wider public concerns, but it is neither required nor entitled to impose threshold requirements in the exercise of the discretion so as to derogate from the breadth of the powers conferred under section 110.

[21] The Court noted that on an application for an early discharge the applicant has the onus of adducing evidence but that “his obligation goes no further than that”.¹³

[22] It is also relevant to consider the authority of Edwards v Official Assignee in which the Court of Appeal had before it a case where the High Court had upheld an objection to a discharge in a post-three-year case.¹⁴ The High Court had directed that the earliest date on which the appellant could make a further application for discharge would be two months prior to the date when he was due to be released from prison. One factor that had weighed with the High Court was that the appellant

was serving a sentence of imprisonment for serious offences relating to the very

bankruptcy from which he sought a discharge. However, because of the appellant’s

_{deficient approach to matters of commercial morality, a considerably longer period}

¹⁰ _{ASB Bank v Hogg [1993] 3 NZLR 156 (CA) at 157.}

¹¹ _{At 157-158.}

¹² _{At 158.}

¹³ _{At 158.}

¹⁴ Edwards v Official Assignee HC Auckland CIV65/98, 13 May 2003; Edwards v Official

Assignee CA236/03, 1 April 2004.

of time as an undischarged bankrupt than would generally be the case was considered justified. The High Court was of the view that the appellant:

...is obviously a person from whom the public needs to be protected in a commercial sense... Public interest overrides the interests of the applicant.¹⁵

[23] While accepting that the three-year period of bankruptcy could be seen as representing the norm, the seriousness and recidivist nature of past misconduct in the case under consideration singled it out for different treatment. The Court of Appeal did not accept that the High Court had been in error in continuing the bankruptcy by declining a discharge even though the appellant had already been a bankrupt for four years and eight months.

[24] So far as onus is concerned, I propose to proceed in the following manner. There is an overall onus on the Official Assignee, or the opposing creditor, to show that there are substantial grounds for declining to allow a discharge after three years. In reaching a decision on contested factual matters that are relevant to the exercise of the discretion, the Court will not accept factual contentions that are put forward by the Official Assignee unless they are established on the balance of probabilities. However while the overall onus is on the Official Assignee to show that there is cause to decline to grant a post-three-year discharge, the Court is not required to accept every contention of fact that is put forward by the bankrupt or to proceed on the basis that such factual contentions are to be considered as established unless and until the Official Assignee has disproved them. That is to say, the bankrupt will be required to establish factual matters which are peculiarly within his knowledge.

Report on “affairs of the bankrupt”

[25] The report that the Official Assignee has provided makes it clear that creditors have proved while the bankruptcy totalled at least $0.5 million, the actual quantum of losses that were caused by the conduct of the bankrupt involved losses to his victims of at least $1.4 million.¹⁶ The Official Assignee expressed the opinion, which would seem to be correct, that because of the extent of the losses many

_{potential creditors did not bother to prove in the bankruptcy.}

¹⁵ _{At [31].}

¹⁶ Official Assignee v McKelvy, above n 1.

[26] There has been no recovery of funds which could be distributed to the creditors. The explanation that the bankrupt has given is that all of the money was lost and that there could therefore be no repayment to his creditors.

[27] There has been no contribution apparently made by the bankrupt from his earnings to the creditors generally.

Conduct before the bankruptcy

[28] One of the matters that the Official Assignee is required to report on is the conduct of the bankrupt before the bankruptcy. There is no need to discuss this matter in detail because the circumstances that gave rise to the bankruptcy have been explored fully in the criminal proceedings, including the sentencing of Mr McKelvy. In summary, it was Mr McKelvy’s involvement in large-scale fraud and prolonged and repeated defalcations that caused the bankruptcy.

[29] It is also relevant to note that Mr McKelvy had been bankrupted previously in

1995. Unsecured creditors who proved in that bankruptcy totalled $351,000 approximately by value. Recoveries were insignificant. The Official Assignee also reports that it was during the course of the first bankruptcy that Mr McKelvy became involved in business dealings that ultimately led to his criminal conviction for fraud arising from dealings in Focus Finance.

Proceeds of offending

[30] Before his examination on 27 August 2014 Mr McKelvy filed an affidavit which addressed matters that were in contention. The first subject area of interest to the Court was what Mr McKelvy had to say about whether he had failed to disclose what had happened to the proceeds of his offending. The second concerned Mr McKelvy’s intentions in regard to buying real estate in the future. I will deal with these in order.

[31] Mr McKelvy exhibited to his affidavit a table that set out some twelve transactions that I understand were the basis for criminal charges which he faced in the High Court. Alongside each identified complainant he set out, in some cases, the amount that had been “lost” as a result of the transaction and what had happened to

the proceeds of the offending for which Mr McKelvy was sentenced. A typical entry shows that Mr McKelvy received a fee of around about $8,000 on some of the transactions. This fee is presumably a commission that he obtained from arranging the finance albeit that the finance was fraudulently obtained. In other cases where gains were made it would seem that the money was lost on subsequent ventures – at least according to Mr McKelvy’s account of matters.

[32] The table that Mr McKelvy has presented sets out what, in effect, are his assertions on the subject. The question of the veracity of the table is not a matter that has been subject to in depth scrutiny. Indeed, it would be difficult to see how it could be without access to documents evidencing the dispersal of the money received on the fraudulent transactions. Realistically, the fact has to be faced that distribution of gains to other co-offenders or subsequent unsuccessful reinvestment in other programmes is unlikely to be accompanied by any string of transaction documents which could be examined for the purposes of verifying Mr McKelvy’s claims. Therefore, the position at which matters come to rest is that the Court has only Mr McKelvy’s word for what happened to the funds but, on the other hand, there is no basis for coming to a conclusion as to the veracity of what he has said about the matter. In those circumstances it does not appear to be just to come to a conclusion that a major concealment has taken place of the proceeds of Mr McKelvy’s crimes.

[33] Another view that can be taken of this issue is that had Mr McKelvy made prompt disclosure of what he says are the facts relating to disposal of the proceeds of offending then it might have been possible for the prosecution and the Official Assignee (or either of them) to conduct an investigation which would produce a reliable conclusion about where the truth lies in the matter. But again, in this area there is a dispute. Essentially Mr McKelvy says that he sent a document to the Official Assignee which he prepared while an inmate at Springhill Prison four years ago. He claims that he was never asked for further information and did not decline to cooperate with the Official Assignee. While Mr Tran for the Official Assignee queried whether that was indeed the case in cross-examination, no conclusion is able to be arrived at again.

[34] To summarise this part of the decision, it is my view that while Mr McKelvy admits to having caused losses of approximately $1.4 million to victims of his offending, it cannot be finally concluded that after paying out his associates, his own “drawings” and the reinvestment in failed alternative scheme that there was any retained residue of his gains left which ought to have been disclosed to the Official Assignee so that attempts could be made to recover the money for the benefit of the victims of his offending. Given that this offending is now approximately a decade in the past, it seems unlikely that any higher level of certainty could ever be arrived at on this subject. The hope of progressing this aspect of the matter further would not therefore be a legitimate reason for prolonging Mr McKelvy’s insolvency.

The causes of the bankruptcy

[35] The cause of the bankruptcy in this case is not in dispute. It arose from the bankrupt involving himself in fraudulent transactions causing loss to the victims of the criminal enterprise and the loss of money which gave rise to the unsatisfied debts of the debtor.

[36] The case is one that can be distinguished from other types of bankruptcies where bankruptcy resulted from a trader failing notwithstanding that there was no breach of the law or of commercial morality with adjudication resulting from circumstances such as ineptness on the part of the bankrupt and perhaps exposure to adverse business cycles which his or her enterprise was unable to survive.

[37] The example given in the last paragraph is at the other end of the spectrum from the case of the bankrupt here. The level of responsibility of Mr McKelvy for what occurred is high. While he was no doubt involved with other persons who cooperated in the criminal activity it is clear from the criminal proceedings that were brought against him and, in particular, the approach to sentencing that he was one of those who were directing the overall enterprise.

Performance of duties of bankrupt

[38] I respectfully agree with the conclusions that Heath J came to when considering an earlier application for discharge from bankruptcy.¹⁷ His Honour obviously concluded that there were some unanswered questions about what had happened to the money that came into his possession as a result of the fraudulent dealings. Heath J further observed that it would be in the best interests of the bankrupt to collate information for the Official Assignee to identify what had

happened to the money taken from the victims of this fraud. However the Official

Assignee in his report dated 6 August 2014 records that:

The bankrupt has failed to provide any of that information.

[39] The question about what had happened to the money would be relevant in two ways. First, parties who had been defrauded are also likely to be creditors proving in the estate of Mr McKelvy. Secondly, any funds which Mr McKelvy might have retained or property acquired from those funds which are the fruits of the crimes would have been recoverable as property of the bankrupt and able to be distributed to creditors generally.

[40] The fact that Mr McKelvy has not provided any information that would assist this process needs to be briefly considered because it may have significance in the context of the current application.

[41] There is no explicit evidence establishing that Mr McKelvy has retained any property. It is possible to argue that an inference arises that if a party has dishonestly acquired large sums of money, as Mr McKelvy no doubt did, that it is natural that creditors would enquire about what has happened to the money. On the other hand, persons who engage in widespread fraud, as did Mr McKelvy, are often inept in business dealings and their affairs are not managed properly which leads to chaotic

_{results for those who have to deal with the aftermath of their actions.}

¹⁷ Official Assignee v McKelvy, above n 1.

[42] On the basis of the paucity of evidence available to suggest that Mr McKelvy has retained money or property from his offending and the probabilities inherent in the situation, it may well be that Mr McKelvy’s omission to provide any information is due to the fact that there is no property available.

[43] I do not suggest that it is anything other than an unsatisfactory situation where the full position has never been explained, but that does not necessarily mean that there has been concealment of property from the creditors concerning which Mr McKelvy is maintaining silence deliberately.

[44] This brief discussion also disposes of the further matter on which the Official Assignee is required to report, namely the conduct of the bankrupt after the bankruptcy.

Interests of the bankrupt

[45] Mr McKelvy appears to be in settled employment. He says he does not intend to change that situation by going into business on his own account or starting a company through which a business would operate. Mr Meyrick told me that Mr McKelvy wishes to “buy his new wife a house”. Mr Meyrick said that a bank had offered to provide a mortgage funding that purpose if the bankrupt were to be discharged.

[46] The purchase of the house seems to be the principal factor expressly relied upon by Mr McKelvy as being the reason why he would wish to be discharged from bankruptcy. Leaving aside the question of what weight should be given to the interests of Mr McKelvy, the difficulty that he faces in buying a house because of the status of bankrupt is a matter that is relevant to the question of his proposed discharge. It is not far-fetched to imagine that the bank would not be prepared to lend for the purposes of buying a house unless it could rely upon the personal covenant of Mr McKelvy.

[47] The position which the Official Assignee took on this issue is that

Mr McKelvy’s proposal goes beyond simply assisting his wife to purchase a

residence in which the family can reside. This is a matter which I consider in the

next part of the judgment when I assess the risks that a discharge from bankruptcy would pose to the community.

Any other fact or matter or circumstance that would assist the Court in making its decision

[48] The main consideration, which is of concern, in this case is the continuing risk to the community that Mr McKelvy poses.

The issue of risk

[49] I have no doubt that Mr McKelvy remains a risk. The fact is that Mr McKelvy is, as the Official Assignee reported, a recidivist fraud offender who sustained 38 convictions for fraud-related matters during the period 1996 to 2006. The beginning of this period of offending overlapped with his first bankruptcy which was not ended until discharge on for December 1998.

[50] Mr McKelvy was imprisoned in July 2006 for a minimum period of five years and so he would have been incarcerated at least until July 2011. One would hope that he has learned something from his experiences but it would be naïve to ignore the fact that since his last conviction in 2006 the fact that he was in prison may well be the explanation for why there has been no further offending.

[51] In assessing whether the bankrupt is a risk and the extent of that risk, the Court is required to engage in trying to predict his future conduct. While this is a matter of difficulty, it is one that is routinely undertaken by the courts in context such as sentencing and in parole board hearings.

[52] Mr McKelvy’s past behaviour of criminal and fraudulent conduct is an indicator of his future behaviour, in the absence of clear evidence that of a major change in his thinking, his attitudes and his conduct. Evidence would include expressions of genuine remorse for past behaviour and tangible action taken to assist those whom the offender has damaged in the past.

[53] It is correct that Mr McKelvy seems to have acquired a good reputation as a worker over the last three or four years. That in itself, though, is insufficient to

offset concerns that he may resume past fraudulent and criminal activity which seems to be a reflection of embedded and enduring personal shortcomings.

[54] Even if Mr McKelvy has not had a change of heart about the inherent unacceptability of the conduct that he has engaged in in the past, it is likely that his experience of undergoing a term of imprisonment may deter him from repeating the type of conduct, which has caused great harm to the community, in the future.

[55] However, I consider that on balance he remains a genuine risk to the community.

The house purchase proposal

[56] In the second affidavit he filed, Mr McKelvy made the following remarks:

29. I do have some skills in building and renovation. Coupled with my skills as a painter I can profit from carrying out renovation work or, if the opportunity arises, from speculation in property to do up and resale. Frankly I see that as one way that I would get ahead if the opportunity were to arise.

[57] Mr Tran made submissions that expressed concern at this proposal. He referred to the fact, which Mr McKelvy accepted, that on his release from prison, his probation officer on 12 November 2012 in dealing with “relapse prevention” stated that the remaining areas of risk for Mr McKelvy were:

1. Money lending

2. Property trading.

[58] Mr McKelvy accepted that those comments accurately identified the areas at which he was at risk.

[59] In the light of the statement by Mr McKelvy that he considers there are opportunities for him in the area of property speculation, any discharge that would leave him free to engage in that sort of activity would be unacceptable. That must be the Court’s main concern. A second aspect of this matter is that the way in which Mr McKelvy dealt with it showed a lack of genuine insight into the need to avoid risk. In the course of his cross-examination, Mr McKelvy emphasised that he did not want to start another company and that he would not be on the title of any properties which would be acquired. That, in my view, did not address the concerns.

[60] In answers to questions from me, Mr McKelvy told me that his wife would be the person who would acquire the houses purchased.

[61] Mr McKelvy’s wife is a recent immigrant from China. She is present in New Zealand on a working visa. Mr McKelvy hopes that in due course she will obtain residency rights. I put it to Mr McKelvy that it was unlikely that if the couple were to become involved in property transactions Mr McKelvy would be able to restrict himself to carrying out the physical work such as painting and carpentry work. It was virtually inevitable, I suggested, that he would make commercial judgments about whether a property should be purchased, the level of price, the amount of finance that the transaction could support and the other details. I also suggested that it was likely that he would be involved in obtaining the necessary consents. Mr McKelvy did not accept this. While he, laudably, expressed great regard for his wife’s ability to work, I do not think that that addresses the point in question here. I consider that the interposition of Mr McKelvy’s wife as the proposed purchaser of the properties does not eliminate or mitigate risk in this area. In my view this is a contra-indication to the desirability of discharging Mr McKelvy.

Practical consequences of discharge

[62] Prior to the public examination of Mr McKelvy I invited Mr Tran to give consideration to the question of what elements of control the Official Assignee would relinquish in the event that a discharge were to be considered. This information seems to be relevant to one element that the Court has to consider, which is the practical effects of granting a discharge, if the Court were minded to do so.

[63] The response from counsel was as follows:

...

1. Having reflected on that, counsel submits that while adjudicated bankrupt, the bankrupt is subject to the following restrictions/obligations under the Insolvency Act 1967:

1. The bankrupt may not take part in the management or control of any business, nor be employed by a relative or by any company, trust,

incorporated society that is managed or controlled by a relative without the consent of the Official Assignee (section 62);

b. If the bankrupt wishes to raise credit exceeding $100, the bankrupt must tell the person giving them the credit that they are an undischarged bankrupt (section 128(1)(g)(i));

c. There is an obligation on the bankrupt to provide information requested by the Official Assignee which provides for oversight of his financial activities (sections 60 and 61).

2. In combination, counsel for the respondent submits that the restrictions above act to insulate the public from the financial risks represented by the bankrupt.

3. Once discharged, the above restrictions/obligations would no longer apply and the Official Assignee would no longer be able to monitor the full compliance of the bankrupt.

[64] I remind myself that the areas of risk that were identified by the probation officer and which Mr Tran and Mr Meyrick both accepted were the relevant ones in this case were risks associated with Mr McKelvy involving himself in moneylending and property trading. Speculating in houses would involve the second of these.

[65] Discharge from bankruptcy would end the statutory based controls on Mr McKelvy from taking part in such a business: s 62. As well, Mr McKelvy’s proposals involved his wife acquiring a house in circumstances where both she and Mr McKelvy would be the covenantors liable for repaying the loan. The requirement that the bankrupt discloses status would similarly end on discharge. Finally, the general oversight available under ss 60 and 61 would be lost.

[66] On the other hand, it should be possible to replace those safeguards with case specific limitations on what Mr McKelvy is able to do in terms of conditions attached to a discharge. I invited Mr Tran and Mr Meyrick to confer on suitable conditions that might be attached to a discharge to provide assurances once the standard conditions applicable to an undischarged bankrupt no longer applied. I will consider the proposed conditions in the next part of the judgment.

Proposed conditions

[67] It is to be made clear that Mr Tran for the Official Assignee regarded the prospect of Mr McKelvy being conditionally discharged from bankruptcy as being very much the second best outcome and that it would be preferable that he not be discharged at all. If, however, the Court were minded to discharge then certain conditions, it was submitted, ought to be attached to the discharge. Counsel for the Official Assignee submitted that any discharge order should be subject to the following conditions. Mr Tran’s submission was:

Counsel suggests that there should be conditions put in place to mitigate the real risks to the community to address the concerns identified by the Official Assignee in circumstances where:

1. The bankrupt is self-employed or involved in the management of any business;

2. The bankrupt obtains employment within the finance industry either as an investment broker or a mortgage broker or finance broker;

c) The bankrupt obtains employment related to the finance industry;

4. The bankrupt is in a position to make applications for finance either on his own behalf or on behalf of others;

5. The bankrupt is in a position to solicit funds from members of the community.

While I accept that at least some of the above objectives were the correct ones to apply when considering conditions, it was not clear to me what statutory authority was available to impose conditions that would have that effect on a discharge being granted.

[68] As to concerns about his becoming involved in the moneylending business, I accept the submission that Mr Meyrick made to the effect that the financing sector is now better regulated than it was 10 years ago with those who are involved in it

requiring to be approved.¹⁸ In any case, the attachment of a condition preventing Mr McKelvy from being involved in such business activity would seem to be no less potentially efficacious than the Official Assignee continuing to control his affairs as an undischarged bankrupt.

Conclusion and summary

[69] I agree that if the protection of the community were the only criterion that the Court was to take into account, the inevitable outcome would be that the Court would decline to discharge Mr McKelvy from bankruptcy.

[70] There will be less force in the argument that the protection of the community requires continuation of the bankruptcy if there can be a discharge on the basis of conditions which avoid or reduce the risks.

[71] I have already mentioned that protection of the community is one of the dominant matters that the Court is to take into account when deciding whether or not to grant the bankrupt his discharge. However there is a need to balance risk prevention with other factors which include taking account of what Mr McKelvy’s personal interests require. It is legitimate to have regard to the question of his rehabilitation as well. While the Official Assignee, properly, emphasised the matter of protection for the community, that is one factor that the Court is required by law to take into account. It is not open to the Court as a matter of law, to ignore other considerations that are required to be weighed as part of the Court exercising its discretion on an application of this kind.

[72] The principal factor that Mr Meyrick was able to point to that would justify granting the application was the inability of Mr McKelvy to obtain a mortgage which would be necessary if he is to acquire a house for himself and his wife. While there is no evidence on this point I accept that he has an intention to do so, as his counsel submits. Apart from that the period of time for which Mr McKelvy has been

_{bankrupt was another factor which in Mr Meyrick’s submission justified discharge.}

¹⁸ Under the Financial Markets Conduct Act 2013.

[73] There would not seem to be any problem with achieving the objectives that Mr McKelvy wishes to of buying a home if the conditions are attached to a discharge. The only proviso would be that the restriction on obtaining finance would be relaxed in order to enable Mr McKelvy to borrow for the single purpose of financing the purchase of a residential property.

[74] Mr McKelvy has now been a bankrupt for 10 years. The continuation of the status of bankruptcy has the effect that his freedom will continue to be restricted. That is a matter that needs to be placed on the balance when the Court is making a decision on an application for discharge. I do not overlook the submission of the Official Assignee that for at least part of the time when he has been bankrupt, Mr McKelvy was in custody and therefore was not adversely affected by the bankruptcy order. I consider that that is too narrow a view to take. Mr McKelvy is now 56 years old. I consider that his rehabilitation, in the sense of reintegration into the community and the regaining of his financial autonomy, is a factor which has weight in this case. Being able to purchase his own residence (for which a loan would be necessary) is part of his rehabilitation. If he were to apply to a financial institution to lend money to him and his wife, his background would inevitably emerge and it would be a matter for the institution in question to make a judgment about whether it is safe to lend money in such circumstances.

[75] My overall conclusion is that it is unlikely that any further advantage is to be achieved from continuing his bankruptcy than could be obtained by granting a discharge subject to conditions. That conclusion follows from the fact that it is unlikely that anything can be gained by the Official Assignee exercising some of the coercive powers that are available to him such as requiring him to provide information about what happened to the proceeds of his offending. There remains a need to restrict Mr McKelvy from taking part in activities such as operating a business and working in the finance sector. If he were to be discharged on conditions of the kind that were set out above, the practical protection for the community would not be significantly less than that which results from his continuing to have the status of undischarged bankrupt.

[76] For all of the foregoing reasons, the Court in its discretion ought to grant Mr McKelvy a discharge subject to conditions. I therefore order pursuant to s110 of the Act that that Mr McKelvy is discharged from his bankruptcy on the following conditions which will apply for a period of five years following the discharge:

a. the bankrupt may not take part in the management or control of any business, nor be employed by a relative or by any company, trust, incorporated society that is managed or controlled by a relative without the consent of the Official Assignee;

b. the bankrupt is not to obtain employment in the finance industry nor enter into or carry on any business relating to the finance industry, including, but not limited to, the business of an investment broker or mortgage broker without the consent in writing of the Official Assignee;

c. the bankrupt is not to make applications for finance on behalf of others without the consent in writing of the Official Assignee;

d. the bankrupt is not to solicit funds from the public for any purpose without the consent in writing of the Official Assignee;

e. if the bankrupt wishes to raise credit exceeding $100, the bankrupt must tell the person giving them the credit that he is subject to a conditional discharge from bankruptcy for a period of five years;

f. the bankrupt will be required to provide such information as the

Official Assignee may request for the purposes of Official Assignee providing for oversight of his financial activities.

J.P. Doogue

Associate Judge