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

CWDS
  Bankruptcy - Income of bankrupt - application for payment of part of income
to trustees for benefit of creditors - bankrupt a general surgeon -
contributor to superannuation fund - whether contributions reasonable -
consideration of income reasonably necessary for maintenance of bankrupt and
his family having regard to occupation and station in life - whether account
should be taken of wife's income
Bankruptcy Act 1966  s.131

HRNG
PERTH
#DATE 19:3:1986
  Counsel for the bankrupt - Mr. M. McCusker Q.C. and Mrs. G.M. Williams
instructed by Messrs. Paterson & Dowding.
  Counsel for the applicants - Mr. H. McLernon instructed by Messrs. McPhee &
Meyer.

ORDER
  1.   The bankrupt pay to the applicants for the benefit of the bankrupt's
creditors the sum of $1,000 each month.
  2.   The parties have liberty to apply on the question of costs and as to
the date from which payments begin.

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

JUDGE1
  Dr. Wald, a general surgeon, was made bankrupt on his own petition on 8
March 1984.
2.  Claims by unsecured creditors amount to $941,201, the major creditor being
the Australian Taxation Office in the sum of $854,019 for outstanding income
tax and penalties.  At the time of his bankruptcy Dr. Wald had no assets of
any real value apart from shares in a medical practice company and shares in a
family trust company.  Since his bankruptcy, Dr. Wald has made voluntary
contributions to his trustees, initially at the rate of $500 a month and since
July 1985 at the rate of $834 a month.  The Court was not told of the actual
amount paid to date under this arrangement but I assume it to be in the order
of $14,000. Whatever the figure, it is a drop in the ocean of debts.
3.  On 24 October 1985 the trustees of Dr. Wald's bankrupt estate entered an
objection to his discharge, pursuant to para.149(3)(c)  of  the  Bankruptcy
Act  1966.   In  consequence, Dr. Wald will not be discharged from bankruptcy
by force of the Act until March 1989, subject to the power of the Court to
grant an earlier discharge under s.150.
4.  The application now before the Court is made by the trustees pursuant to
s.131 of the Act.  By it the trustees seek an order that part of the income of
the bankrupt be paid to them for the benefit of creditors.  In presenting
their case, the trustees did not specify a precise amount which it is said Dr.
Wald can pay in accordance with s.131 though their counsel suggested an annual
figure in the region of $15,000.  At the outset of his case, the bankrupt made
a formal offer through counsel to pay $750 a month i.e. $9,000 a year.  Thus
there is a clear recognition by the bankrupt of his capacity to pay a
substantial sum from income; the question for the Court is what sum is
appropriate in the light of the principles applicable to s.131 as they have
been expounded in judicial decisions.
5.  The facts relating to Dr. Wald's income and expenditure are not much in
dispute.  The issues between the parties focus to a large extent upon Mrs.
Wald's financial position and to a lesser extent that of their children.
6.  Dr. Wald is 54 years of age.  He lives with his wife and their three
children Rebecca, Claudia and Julian, aged respectively   about  20,  18  and
16.   The  family  lives  at 18 Riverview Street, South Perth, a home which is
described in an affidavit sworn in support of the application as "an extremely
comfortable one".  The description of the house in a letter written to Dr.
Wald by real estate agents, Colliers, suggests that the description is far
from extravagant.  The house is estimated to have a rental value of about $500
a week.  Originally Dr. Wald and Mrs. Wald were the registered proprietors as
joint tenants of the house; on 15 April 1980 Dr. Wald transferred his interest
to his wife.  There is no attack on the transfer.  The house is mortgaged to
Legal & General Assurance Society Limited.
7.  Mrs. Wald owns three motor vehicles, two Mercedes Benz and one Mazda 323.
One of the Mercedes, a 1982 380 SL, is leased by her to Carsville Pty. Ltd.
Rental for the year ended 30 June 1985 amounted to $18,682.  Carsville is a
medical practice company, following the usual pattern of such companies.  It
rents premises at 35 Colin Street, West Perth at which Dr. Wald carries on
practice.  The premises are owned by a family trustee company Carj Pty. Ltd.
Carsville hires the Mercedes which it makes available to Dr. Wald, pays all
expenses relating to the medical practice,  makes  contributions  to  a
superannuation  fund  for Dr. Wald's benefit and pays him a salary of $60,000
a year plus a bonus.  Whatever the precise legal position regarding the bonus,
the fact is that any surplus income each year is paid to Dr. Wald. Mrs. Wald
has income of her own.  For the year ended 30 June 1985 she received $2,288 by
way of salary which I take to be an amount paid to her by Carsville for work
done in the medical practice. She earned a further amount of $17,609,
described as "Interest and Dividends".  There was no evidence as to how this
amount was made up or as to its source.
8.  Carj Pty. Ltd. appears to have no assets of any real value but, as trustee
of the Wald Family Trust No. 2, it owns the premises at 35 Colin Street.  From
this it derives income in the form of rent paid by Carsville.  For the year
ended 30 June 1985 the rent was $10,842; the net income of Carj was $2,468.
The major item of expense was mortgage interest.
9.  The Court had before it a schedule of family income and expenses prepared
by a chartered accountant, Mr. Walker.  It is unnecessary to refer to this
document in its entirety but portion of it provides a useful starting point
for an inquiry under s.131.

                         M. Wald   D.J. Wald   Trust   Total

Net Income Before Income Tax               71,281    35,069      2,468
108,818 
Less: Income Tax and
      Medicare Levy      33,386    11,820        -      45,206

                         37,895    23,249      2,468    63,612

Less: Living Expenses    29,162     5,275        -      34,437
      (See Schedule)

                          8,733    17,974      2,468    29,175

Less: Payments to
      Trustee             8,000       -          -       8,000

                        $   733   $17,974     $2,468   $21,175
                         =====================================

10.  There is also before the Court a schedule showing how the living expenses
of $29,162 are made up.  $6,455 relate to payments on the South Perth home,
comprising interest, rates and taxes, insurance, electricity and heating and
repairs.  The balance relates to housekeeping, clothing, school fees, medical
and dental expenses and sundry items.  There was no challenge to any of the
figures.  The components of the $5,275 attributed to Mrs. Wald are to be found
elsewhere.  The major items are $2,100 for life assurance premiums and $1,065
for insurance of the South Perth home.  The other items relate to school fees
and books, private motor vehicle expenses and sundry items.  Again there was
no attack on any particular item.  There were small discrepancies between some
amounts in the schedule and their counterparts referred to in Dr. Wald's
affidavit of 6 December 1985.  But counsel did not suggest anything turned on
this.
11.  One matter about which there was considerable debate was the existence of
a superannuation fund and the contributions made to it.  In 1982 Dr. Wald's
employer and medical practice company M. Wald Pty. Ltd. established an
employee superannuation fund with Legal & General Life of Australia Limited.
Dr. Wald was trustee of the fund.  In December 1984 M. Wald Pty. Ltd. ceased
to carry on business and Carsville Pty. Ltd. became Dr. Wald's employer and
medical practice company.  A new superannuation fund was established, again
with Legal & General.  The relevant insurance policies were endorsed to show
that they had ceased to be subject to the trusts of the M. Wald Pty. Ltd.
Superannuation Fund and were subject to the trusts of the Carsville Pty. Ltd.
Superannuation Fund.  The current superannuation fund identifies Carsville as
both employer and trustee.  The two superannuation fund deeds are identical.
12.  Clause 10.5 of the deed provides that in certain circumstances, including
bankruptcy or insolvency of a member or beneficiary, the member or beneficiary
"shall forfeit all his Benefits".  Clause 10.5(b) requires the trustee to hold
forfeited benefits for the benefit of any member or beneficiary and his
dependants "in such proportions between them and on such terms as the Trustee
may determine in his absolute discretion from time to time, provided that no
payment shall be made whilst the Member remains in the service of the Employer
or Associated Employer except to the extent necessary for the maintenance and
support of the Member or a Dependant to relieve hardship".  Monies not so
applied are to be transferred to the Supplementary Benefits Account (cl.10.6).
Rather circuitously, monies in this account may be appropriated and paid to
the employer or transferred to a member's account (cl.6.8).
13.  The applicants argue that on Dr. Wald's bankruptcy, indeed on his
insolvency which they say dates from August 1981 when he was unable to meet
his tax assessment, he forfeited any benefits under the superannuation deed.
They say further that any contributions thereafter to the original
superannuation fund and to the current fund "could not and should not have
been made" by either employer company and that any contributions so made
"would otherwise properly form part of Dr. Wald's income by virtue of the
nature of his medical practice company arrangement".
14.  A question immediately arises as to the functions and powers of the Court
on an application under s.131 of the Bankruptcy Act.  The applicants do not
seek a declaration of invalidity in the case of either superannuation deed nor
do they seek orders for repayment of any contributions made to the
superannuation funds.  Clearly those matters are not within the scope of an
application under s.131.  Rather, as I understand the applicants' case, it is
twofold.  First they say that Dr. Wald ought not be able to set aside, through
a superannuation arrangement, an annual amount of $14,000 or thereabouts which
would otherwise be available for creditors.  Next they say (and this is
perhaps only a variation of the first contention) that payments ought not to
be made to a fund from which other persons as well as Dr. Wald may benefit.
15.  I do not accept the proposition that it is unreasonable for Dr. Wald to
make provision by way of superannuation.  In practical terms he is
self-employed; he is 54 years of age with a family; he is engaged in a
demanding profession and a superannuation fund seems to me to be entirely
reasonable.  An integral part of the superannuation fund are retirement
investment plan policies with Legal & General and, as I understand the
position, Dr. Wald's accumulated benefits now amount to $70,000. Benefits are
payable on retirement or death.  Annual contributions to the fund amount to
$13,929.10.  In my view the contributions made and the benefits accruing are
in no way unreasonable.
16.  Counsel made submissions as to the impact of bankruptcy or insolvency on
the superannuation deeds.  Counsel for Dr. Wald submitted that, in any event,
cl.10.5 had no operation where a member was already bankrupt or insolvent at
the time a fund was established.  Counsel for the applicants drew attention to
s.58 of the Bankruptcy Act whereby after acquired property of the bankrupt
vests in the trustee.  It was suggested that this section might operate to
vest any benefits payable under the superannuation deed in the applicants
rather than Dr. Wald.  I do not find it necessary or desirable to resolve any
of these questions.  If there has been a forfeiture of benefits under the
deed, the trustee of the deed may apply any sums involved for the benefit of
Dr. Wald, Mrs. Wald (who is also a member) and their children as dependants.
In any event the situation is one of benefits payable under insurance policies
on the happening of certain events, not a fund of money available for
distribution.  Furthermore there is little doubt that the terms of the trust
deed could be amended or a new deed entered into so that Dr. Wald's bankruptcy
would have no consequences.
17.  There is one other factual matter to which I should refer before turning
to the principles to be applied in determining this application.  The
financial statements for the year ended 30 June 1985 in respect of Carj as
trustee for the Wald Family Trust No. 2 shows outstanding loans of some
$70,000 to beneficiaries including the Wald children.  In practical terms this
does not represent a fund from which monies may be paid to the children or for
their benefit.  The only way these loans could be repaid would be from a sale
of the premises.  This would simply mean that Dr. Wald would have to make
other arrangements to conduct his practice, with adverse financial
consequences so far as he is concerned.
18.  Section 131 of the Act begins with the assertion that, subject to the
section, "a bankrupt who is in receipt of income is entitled to retain it for
his own benefit".  It is for a trustee applicant to satisfy the Court that an
order under s.131 should be made and to satisfy the Court as to the quantum of
that order. Lyford v. Levit (1984) 2 FCR 264.  In Lyford v. Levit at p 270 the
issue before the Court on an application under s.131 was put this way:

     "The question is one of ascertaining what is reasonably
      necessary for the maintenance of the bankrupt and his
      family, regard being had to the bankrupt's occupation
      and station in life ...  In making that assessment, the
      court may bring into account not only the income in the
      hands of the bankrupt but also income or other funds
      which are reasonably available to him".

19.  In Lyford v. Levit there was income or other funds reasonably available
to the bankrupt through a trust of which he was a potential beneficiary.  The
Court accepted that the trust may well have been a perfectly legitimate means
of redistributing the bankrupt's capital and income, for income tax as well as
other purposes, but concluded that the distribution could not be ignored in
considering what monies were available to the bankrupt.  The Court thought it
also relevant that the outgoings of the bankrupt included items to which some
contribution might reasonably be expected from his children who were
beneficiaries under the family trust.
20.  For the year ended 30 June 1985 Dr. Wald had an income after tax and
medicare levy of $37,895.  This may be taken as a reasonable guide to his
current situation though Dr. Wald anticipates some fall in real earnings from
the practice in the current financial year.  His living expenses amounted to
$29,162 leaving a balance of $8,733, the bulk of which went in payments to the
trustees.  The living expenses included a component of $6,455 referable to the
South Perth home.  Dr. Wald pays no rent and his counsel submitted that the
rental value of the house was a relevant consideration.  But the house
constitutes the family home and it would be artificial to seek to attribute
some proportion of the rental value to Dr. Wald's occupancy.  In any event,
the $6,455 he contributed is reasonably proportionate if that exercise were
carried out.
21.  In my view the Court cannot ignore Mrs. Wald's income. I do not find it
helpful to look to questions that may arise under the Family Law Act 1975
regarding maintenance obligations between husband and wife and parents and
children.  But if one asks the question  -  what  is  reasonably  necessary
for  the maintenance of Dr. Wald and his family having regard to his
occupation and station in life - one cannot ignore Mrs. Wald's position.
Equally one cannot ignore the position of the family trust  though  the
income  available  from  the  trust  is minimal.  Dr. Wald contributed $22,707
towards the living expenses of himself, his wife and family.  I put to one
side the $6,455 paid in respect of the house.  It seems to me not unreasonable
that Mrs. Wald should contribute an amount of $5,000 from her income towards
the living expenses of the family.  Of course I cannot order that she do so;
all I am doing is approaching the matter on the basis that in considering what
is reasonably necessary  for  the  maintenance  of  Dr.  Wald  and  his
family, Mrs. Wald's income cannot be ignored.  I do not accept the trustees'
submission that the living expenses should be apportioned more or less equally
between Dr. Wald and Mrs. Wald.
22.  If the figure of $5,000 is added to the $8,000 shown in the schedule, the
result is an amount of $13,000 annually. However I do not think the Court
should approach the matter in such precise terms for there may be adverse
contingencies that the family has to meet.  It is true that any order made by
the Court may be varied from time to time but it is undesirable that the Court
should be called upon to make adjustments each time a contingency, adverse or
favourable, occurs.
23.  In my view an appropriate order under s.131 in all the circumstances is
that Dr. Wald pay to the trustees Maurice Hodgson Lyford and Rodney Michael
Evans the sum of $1,000 a month.  I shall hear from counsel on the question of
costs and on the precise terms of the order, including the date from which
payments should begin.