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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

The bankruptcy of Sir Garfield Barwick, Chief Justice of the Australian High Court – an example of a true ‘fresh start’

A significant aspect of our legal, social and political history has been revealed through a paper presented on the financial difficulties and subsequent bankruptcy of Sir Garfield Barwick, who became the Chief Justice of the High Court of Australia. Lessons from that history are then shown to have direct relevance to the debates about bankruptcy – is it too easy? or is it a restriction on entrepreneurial business conduct? – that we have today.

Justice Andrew Greenwood of the Federal Court of Australia gave the opening address to QUT’s International Personal Insolvency Conference on 7 September 2016.  His paper has recently been issued. A reason for the delay was the fact that the Judge accessed the archived file records of Barwick’s 1930 bankruptcy, held by the National Archives of Australia, the file being in a “fragile condition”, for which our National Archives office commendably digitized the entire file.

The QUT conference covered the full range of issues in personal insolvency, with international and local speakers, with a theme of “A Fresh Look at Fresh Start: the Human Dimension to Bankruptcy”.

Consistent with that theme, Justice Greenwood opened his address by saying that the topics at the QUT conference engaged the notion of a fresh start in a very direct and contemporary way. He then gave “an old illustration of this contemporary problem”.

Sir Garfield Barwick

Barwick CJ.jpg

He recounts the early life of Barwick, from his life as a young barrister, his bankruptcy, and his revival to become one of the leading legal advocates of his day, and his ultimate elevation as Chief Justice, in 1964, to 1981.  Barwick had been the Attorney-General of Australia (1958–64) and the Minister for External Affairs (1961–64).  

Barwick’s bankruptcy, in 1930, at the age of 26, arose as a result of a guarantee given for his younger brother to set up a petrol station, which failed. The guarantee was called upon by a supplier, Atlantic Union Oil, and Barwick was served with a bankruptcy petition, in his chambers, at 164 Phillip Street Sydney. Barwick defended the petition, before Long Innes J, based on certain agreements he said were in place with creditors, and had the petition dismissed.

As Justice Greenwood writes,

“a curious event then occurred which unleashed a firestorm”.

Barwick immediately issued a defamation writ for ₤10,000 against Atlantic Union Oil for presenting the petition.

There then ensued an application to Long Innes J by Atlantic Oil to rescind the dismissal of the bankruptcy, in the course of which Barwick was subjected to intense cross-examination, recounted in the article, in which his credit was impugned.

The end result was that Barwick was again made bankrupt.

From a close examination of the file, Justice Greenwood gives a detailed account of the bankruptcy, including the outcome of the Official Receiver’s investigations – that debts of ₤1,604 11s 6p had been incurred “in circumstances where there was no reasonable or probable expectation of the debts being paid”, with “no doubt … that Barwick’s brother … failed to keep proper records within the business of the service station”.

Personal stress

How confronting the stress and difficulty of bankruptcy was for Barwick and his wife Norma is recounted in Barwick’s own words:

Norma and I had to begin again. I had to buy our cottage again by arrangement with the second mortgagee, who had foreclosed.

To make matters worse, the Depression deepened. I doubt if anyone who did not pass through it can appreciate the distress it caused. Norma and I suffered along with so many others. To supplement what small income I had I did some coaching of law students and Norma went to work in her trade as a milliner. Our joint efforts and mutual determination to succeed pulled us through, though the depth of the penury we experienced was almost devastating.

The bankruptcy proceedings were not an encouragement to solicitors to brief me, and having to attend to financial affairs had distracted me to no small degree. So the growth of my practice was much retarded.

Perhaps as a consequence, Justice Greenwood writes that, in the long period of Barwick’s ultimate revival, that he

“always had a sense of, and an eye to, the human dimension of the way in which the law worked”.

Relevance to the present day

The purpose of the recount of this history is then explained by Justice Greenwood.

“Why am I mentioning these events in some detail? These matters concerning Barwick’s bankruptcy are worthy of examination in a contemporary setting because they demonstrate again that in the right or relevant circumstances, anyone might become bankrupt. They also demonstrate that a citizen can recover from the events and stress of bankruptcy and go on to much better things or perhaps even great things”.

Fresh start

Justice Greenwood then goes on to assess the concept of a fresh start as a key policy goal in modern bankruptcy regimes. He lists a number of sub-themes:

  • Is it just rhetoric or reality?
  • What are the policy tensions between enabling a fresh start and sustaining commercial certainty and continuity?
  • How might personal insolvency law be reformed?
  • What are the alternatives to bankruptcy?
  • Are there insights which might be derived from a multi-disciplinary approach to the questions?
  • What comparative approaches have been adopted by other civil societies?
  • What are the perspectives of lenders?
  • How does the bankruptcy regime intersect with human rights and how might a properly crafted regime intersect with human rights?
  • What are the health effects of over-indebtedness?

Lack of data

The Judge goes on to say that

“the need for scholarly writing and analysis in this area is critical. Universities are places to which society turns for critical thinking, thought leadership and empirical analysis. The Academy must shape the debate and provide a principled foundation upon which policy makers might act, taking into account the contributions of other disciplines including the professions”.

Much of the academic literature emphasizes that Australian bankruptcy law has unclear objectives that seem to lead to conflicting policies. While bankruptcy has evolved to respond to changing economic circumstances it “has failed to fully resolve clear objectives”.

Nevertheless, the literature suggests three broad objectives as moral policing, economic efficiency and social welfare, each of which can overlap and be in conflict.

“A major complaint is that the Bankruptcy Act contains no provisions which set out the objectives of the legislation (and thus the regime) which makes it difficult, it is said, to assess whether the statutory regime is achieving its goals”.

Justice Greenwood agrees, saying that the objectives of bankruptcy laws need to be more clearly defined.

Social stigma, and entrepreneurialism

This issue, an important matter for policy makers, is clearly linked to the historical development of bankruptcy law and its unresolved objectives.

“The social stigma effect is seen as a key social welfare issue as it causes stress and poor health and impedes economic rehabilitation. Social stigma is also increasingly seen as an economic issue as it promotes business risk aversion and impedes re-engagement by failed business persons.

Economic policy has increasingly become interested in the role of the entrepreneur in driving innovation and growth. Policy makers interested in replicating the entrepreneurial culture of places like Silicon Valley have identified insolvency regimes as an important factor in mitigating the risk of business start-ups”.

He comments that the Australian Government’s interest in the role of bankruptcy policy in fostering entrepreneurialism is evident in the government’s proposal for a one year bankruptcy. The rationale behind this policy is said to be that

First, entrepreneurs assessing the risk of initiating a start-up will factor in the consequences of failure and shorter bankruptcy periods lower the risk.

Second, the stigma of bankruptcy contributes to a culture of fear of failure and entrepreneurialism.

Third, first time business bankrupts are valuable contributors to the economy and they should be free to use their skills and access credit.

Justice Greenwood does not go further in assessing these rationales, seen skeptically by many. He refers to the fact that business related bankruptcies comprise only 20% of all bankruptcies.

“The academic literature, which generally focuses on the human dimension, is more concerned with improving the bankruptcy experience for the remaining 80%”.

Comment

This address by Justice Greenwood served as a prompt and stimulus for many of the sessions at the QUT conference. Its publication now is most timely, not only because of its relevance to proposed reforms in personal insolvency, but also because it is relevant to the broader issue of our attitude to financial default or failure. The corporate ‘safe harbour’ reforms of the government are one example of a legislative attempt at ameliorating that attitude, with the aim of promoting a more beneficial and constructive approach to the resolution of financial difficulties.

With great respect, I think Justice Greenwood’s address had a significant impact on those attending the conference, and his subsequent detailed research and thinking, and the publication of this article, represents a major contribution to insolvency literature. 

Michael Murray QUT Law

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