It was like a game of Monopoly, with the bankrupt ‘passing Go’ several times and collecting money along the way. But luck eventually ran out for a four-time bankrupt who had obtained over $1.7 million in loans from an unsuspecting victim without disclosing to her that, at the time each loan was made, he was an undischarged bankrupt, contrary to section 269(1)(a) of the Bankruptcy Act 1966 (Cth).

Rules of the game

Under section 269(1)(a) of the Bankruptcy Act 1966 (Cth) (the Act), an undischarged bankrupt must not, either alone or jointly with another person, obtain credit of $3,000 or more from a person without informing the person that they are an undischarged bankrupt. Penalties of up to 3 years imprisonment apply.

The Victorian County Court decision in DPP v Mardirian [2019] VCC 1551 is instructive on what happens when you break the rules of the bankruptcy game.

Rolling the dice

During the course of his fourth bankruptcy, the bankrupt formed a romantic relationship with the victim. She found him handsome, attentive and very charming. He claimed to be a successful businessman who dealt in advancing business loans at high interest rates for profit.

The bankrupt persuaded the victim to make various loans to him totalling around $1.7 million. He claimed the loans were to further his business interests and investments and to cover short term cashflow issues pending repayments of loans he had made to others. Of note is that the loans were obtained from the victim without the bankrupt disclosing to her that he was an undischarged bankrupt.

It was not until another victim, who was persuaded to transfer $17,000 to the bankrupt and was not repaid, that the game of chance took a different direction. The second victim conducted searches and found out that he was an undischarged bankrupt at the time the loan was made. She contacted his registered trustee and notified him of the situation. The game was coming to an end.

Go to jail

The Court accepted that during the course of dealings with the second victim, the bankrupt did advert to his bankruptcy, but ultimately held that the bankrupt failed to make proper disclosure to both victims in contravention of section 269(1)(a) of the Act. In sentencing, the Judge made general remarks about a bankrupt’s various obligations under the Act including being conscientious when dealing with creditors.

His Honour went on to say “Your conduct as a three-time bankrupt when you must have known your obligations to disclose the status, was absolutely unacceptable and a grievous breach of trust against the complainant… The complainant had placed her trust in you. Your conduct is to be utterly denounced”.

The bankrupt was sentenced to 3 years and 9 months imprisonment.

This case serves as a timely reminder of how simple searches (bankruptcy searches for individuals and ASIC searches for organisation) before providing credit may assist in risk minimisation for your organisation. The case also serves as a warning to underwriters, insurers and other organisations which supply credit or supply goods and services on credit terms about the lengths some may go to in trying to ‘chance’ their luck and ‘pass go’.

Polczynski Robinson can assist in all aspects of bankruptcy and other insolvency matters. For further information, please contact Kylie Tate or Dominic Dragicevic.