Release from bankruptcy of a deaf person

A deaf person, with some mental impairment, who was bankrupt was successful in having an objection to his discharge from bankruptcy cancelled. The objection was based on the ground that he had intentionally failed to disclose to the trustee his interest in a house, where he lived, left to him by his late mother in her will. The bankrupt had completed forms saying he had no interest in the house. The effect of the objection was to make the period of bankruptcy 8 years instead of 3.

The Administrative Appeals Tribunal said that there was insufficient evidence of the requisite intention. Proof of intention is a fundamental aspect of the ground of objection.

In completing his statement of affairs when he went bankrupt in 2013, he was assisted by his cousin, a solicitor – who gave as a reason for the assistance that “the debtor is deaf + intellectually challenged”. The cousin had declared in writing that he had “carefully read to/interpreted for the person” the information and “that the person had read and understood the information and questions”.

In evidence before the AAT, the bankrupt said that he knew his mother’s will made provision for him, but he did not read the form asking him about any property and he had signed it where his cousin had indicated. He did not know what the form said.  He did the same in a later question asked in 2014, again ‘assisted’ by his cousin.

The AAT noted that the bankrupt was profoundly deaf with associated speech impairment, caused by a childhood accident, and with some mental incapacity. The AAT did not detect any dissembling in his evidence and he appeared to be telling the truth. There was no evidence from the cousin.

The trustee’s objection was cancelled because there was insufficient evidence to support the existence of the ground of the objection.  It should be noted that the Inspector-General in Bankruptcy had agreed with the trustee’s objection. Estate of Nicholas Saad and Inspector-General in Bankruptcy [2018] AATA 487

Comment

Dealing with the bankruptcy of a person with any significant incapacity would be difficult, likewise for the professional and personal advisers. Deaf Australia is a good first point of contact for those advising the deaf or hearing impaired.

A subjective test applies in determining whether something is done intentionally. In Broadley and Inspector-General in Bankruptcy [2006] AATA 914, the AAT found that the bankrupt’s lack of commercial skills supported a finding of a lack of his intention in failing to disclose his interest in property. The AAT described him as a successful salesman but an unsuccessful businessman and said, for example, that he “signed whatever documents were placed before him”.

The Tribunal in that case went so far as to find that the bankrupt’s forgetfulness and his lack of awareness of the role of a director constituted a reasonable excuse under s 149N(1A) for failing to comply with the trustee’s request for information about his role as shareholder and director of a family company — another special ground under s 149D(1)(d).

It should be noted that a trustee can rely on alternate grounds of objection, serving to extend the period of bankruptcy to 5 years, where intention does not need to be shown.  

Good law?

Intentionally failing to disclose property is a serious claim, and an offence. If an objection is lodged by the trustee in bankruptcy (under s 149D(1)(am)), it is a ‘special ground’ of objection, and serves to extend the bankruptcy for 8 years. It is always open to a trustee to withdraw the objection.

But it is one of a number of such objections where little purpose is served by the objection being lodged. If an objection is meant to persuade the bankrupt to co-operate, a ground that arose in the past, and which cannot be remedied, seems to be of little purpose.  It can’t be used to persuade the bankrupt to co-operate in some other respect. This contrasts with, for example, an objection lodged on the basis that the bankrupt is refusing to come in for an interview by the trustee: s 149D(1)(m).

That same point was raised by the bankrupt, unsuccessfully, in Playford and Inspector-General in Bankruptcy [2018] AATA 19 [2018] AATA 19

Photo: St James Cathedral Seattle USA.

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2 comments

  1. A bankrupt who fails to disclose an interest in property and is discovered may also have another undisclosed interest in property. It has happened before. The trustee is not to know at the time of objection.

    • I should have added that the existence of the ground of objection acts as a deterrent in most cases. Without the ground, there would be a greater temptation not to make the disclosure. Objection to discharge is more immediate and effective in practice than the threat of being prosecuted. In practice, very few bankrupts get prosecuted and the sentences are seen to be lenient. True, nobody wants a criminal record. However, there are many who will take the punt, given that few bankrupts are successfully charged and convicted. In more than 20 years, I have only ever had a conviction on two occasions and they were husband and wife bankrupts.

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