ALIA v Pattison
[2006] FMCA 690
•5 May 2006
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ALIA v PATTISON | [2006] FMCA 690 |
| BANKRUPTCY – Trustee’s objection to discharge from bankruptcy – Trustee’s ground of objection bankrupt’s failure to respond to annual income questionnaire – Trustee’s ground of objection a special ground – whether efficacy of in continuing bankruptcy. |
| Bankruptcy Act 1966 (Cth), ss.49B, 149D, 152, 178 Bankruptcy Legislation Amendment Act 2002 (Cth) |
| Frost v Sheahan [2005] FCA 1014, 220 ALR 733 at [107]-[112] Nguyen v Pattison [2005] FCA 650 Thomas v Donnelly (No 2) [1997] FCA 1142 |
| Applicant: | JOSEPH ALIA |
| Respondent: | PAUL PATTISON (AS TRUSTEE FOR THE ESTATE OF JOSEPH ALIA) |
| File Number: | MLG 1082 of 2005 |
| Judgment of: | Phipps FM |
| Hearing dates: | 16 February & 21 March 2006 |
| Last Submission: | 21 March 2006 |
| Delivered at: | Melbourne |
| Delivered on: | 5 May 2006 |
REPRESENTATION
| Counsel for the Applicant: | Mr Irlicht |
| Solicitors for the Applicant: | Irlicht & Broberg |
| Counsel for the Respondent: | Mr Agardy |
| Solicitors for the Respondent: | Harwood Andrews |
ORDERS
The application is dismissed.
The respondent’s costs be paid out of the bankrupt estate in accordance with the Bankruptcy Act 1966 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT MELBOURNE |
MLG 1082 of 2005
| JOSEPH ALIA |
Applicant
And
| PAUL PATTISON (AS TRUSTEE OF THE ESTATE OF JOSEPH ALIA) |
Respondent
REASONS FOR JUDGMENT
Introduction
The respondent, the applicant's trustee in bankruptcy, has objected to the applicant's discharge from bankruptcy. The applicant appeals against that decision under s.78 of the Bankruptcy Act 1966 (Cth). The Trustee objected to discharge because the bankrupt did not provide a response to an annual income questionnaire, requested by the Trustee in September 2002, until after the Trustee lodged his objection in June 2004.
Two matters are not completed in the administration of the bankruptcy. They are a claim by the Trustee to have declared void the bankrupt’s transfer to his former wife of his half share in a residential property, and a proof of debt by the liquidator of a company, of which the bankrupt was sole director and shareholder. It is claimed that the bankrupt permitted the company to trade while insolvent.
The issue in the case is whether, exercising its discretion under the section, the court should allow the appeal against the decision. That involves examining the circumstances which led to the objection and a whether there is any efficacy in the bankruptcy continuing.
History
The applicant was made bankrupt by a sequestration order in the Federal Magistrates Court on 30 April 2002. Initially, Mr Henry Scott was appointed Trustee. The respondent, Mr Paul A Pattison, replaced Mr Scott on 3 September 2002.
Section 149B of the Bankruptcy Act provides for a trustee to give to the Official Receiver written notice of objection to a bankrupt’s discharge from bankruptcy. The Trustee must file the notice of objection if the Trustee believes that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged. There is no other way for the Trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged (s.149B(2)).
The Trustee’s notice of objection is dated 22 June 2004. The ground relied on was that the bankrupt, when requested on 16 September 2002 in writing by the Trustee to provide information by completing an Annual Income Questionnaire for the Contribution Assessment period 30 April 2002 to 29 April 2003, had not responded. The ground is contained in s.149D(d), that is that the bankrupt, when requested in writing by the Trustee to provide information about the bankrupt’s property, income or expected income, failed to comply with the request.
The bankrupt did not respond to the request despite six letters between 16 January 2003 and 16 January 2004. The bankrupt did complete questionnaires for subsequent periods. The bankrupt had been sole shareholder and director of Australian Manufacturing Products-Forbes Pty Ltd. It had gone into liquidation prior to the applicant's bankruptcy and Mr David Scott was appointed liquidator.
The applicant provided the completed questionnaire for 30 April 2002 to 29 April 2003 after he had received the notice of objection. His solicitor requested the Trustee to withdraw the objection. The Trustee did not and gave notice that the Trustee had commenced court proceedings under s.120 of the Bankruptcy Act against the bankrupt’s ex-wife in respect of the transfer to her on 9 April 2001 of the bankrupt’s half share a residential property. The consideration stated in the transfer is "natural love and affection". That application was filed in the Federal Magistrates Court on 19 October 2004.
The applicant's explanation for not providing the questionnaire for the period 30 April 2002 to 29 April 2003 is that he had provided the information to Mr Scott at a meeting at a time Mr Scott was his Trustee. He could not remember whether he had filled in a questionnaire.
The completed questionnaire for the period 30 April 2002 to 29 April 2003 was sent to the Trustee under cover of a letter dated 10 June 2005 from the applicant's solicitors. It shows no income and no assets. It says that the applicant pays no rent and gives an explanation that he lives with a friend but does home duties and general repairs and maintenance of the property. In response to the question whether someone other than the applicant pays any personal business expenses, the applicant responded that Connie Todaro paid living expenses of $5,200.00, mobile phone expenses of $240.00 and entertainment expenses of $2,000.00.
In his oral evidence the applicant said that he does not work. His expenses are paid by his friend or partner. In return he does home duties and maintenance. When asked some questions in cross-examination about his income, he said he did some work for about four weeks in about September 2002. He was paid $2,000.00 to $2,400.00 for doing some drafting work for an engineering company. He acknowledged that the living expenses, mobile phone expenses and entertainment expenses referred to the questionnaire and all of his living expenses were paid by his friend or partner, Connie Todaro.
In submissions there was some debate about the accuracy of the return once it was submitted because it showed no income, yet the bankrupt had earned some money in September 2002. A difficulty with this is that while the return is for the assessment period 30 April 2002 to
29 April 2003, it was requested by the Trustee in September 2002. It was not completed and returned by the bankrupt until June 2005. If treated as having been completed when it should have been, the statement about income may be accurate, but not at a time when it was returned.
The Trustee required the information so that he could comply with s.139W(1) of the Bankruptcy Act 1966. This requires a Trustee, as soon as practicable after the start of each contribution assessment period in relation to a bankrupt, to make an assessment of the income that is likely to be derived, or was derived by the bankrupt during the period. Contribution assessment periods are 12 month periods, the first commencing at the date of the bankruptcy.
Consequently, by providing the return in June 2005, the bankrupt did not remedy the breach. By that time the Trustee had made an assessment for the contribution period 30 April 2002 to 29 April 2003, a nil assessment. The Trustee made the assessment without the benefit of the return. The assessment was made as soon as practicable, but if the bankrupt had provided the return at the time required, the "soon as practicable" making of the assessment would have been earlier and in line with what the legislation intends. The Trustee may have been able to make an amended assessment after receiving the return. In this case, that was not necessary because the result was the same, a nil assessment.
The bankrupt’s explanation that he thought he had provided the information to Mr Scott is not an answer. The Trustee's annual statement of income form required information to the date of the completion of the form, which of necessity had to be up to at least
16 September 2002. The bankrupt could not provide this information to Mr Scott at an earlier date.
The relevant law
The application is made under s.178(1) of the Bankruptcy Act. It provides:
“If the bankrupt, a creditor or any other person is affected by an act, omission or decision of the Trustee, he or she may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable”.
The Trustee’s objection to discharge from bankruptcy was made under s.149D(1)(d). It provides a ground of objection:
“the bankrupt, when requested in writing by the Trustee to provide written information about the bankrupt's property, income or expected income, failed to comply with the request.”
A trustee is not required to give grounds for an objection under s.149D(1)(d), unlike some other grounds. This distinction between objections for which grounds are not required and objections for which grounds are required was introduced by the Bankruptcy Legislation Amendment Act 2002 (Cth). The explanatory memorandum for the Bill describes the former as "special grounds". The explanatory memorandum says that the reason for the change is to strengthen the provisions against bankrupts who fail to provide information, then, after objection to discharge is made by a Trustee, provide the information.
The Court does not put itself in the position of the Trustee. It reviews the Trustee's decision. The Court has a wide discretion. In Frost v Sheahan [2005] FCA 1014, 220 ALR 733, Lander J said at [107]-[112]:
“107 The purpose of s 178 is to empower the Court to exercise a supervisory role over the Trustee of a bankrupt estate: Cummings v Claremont Petroleum NL (1996) 185 CLR 124 at 133. Section 178 allows a bankrupt to seek the Court’s assistance to judicially review acts of the Trustee in the carrying out of the administration. The power exercised by the Court must be judicial.
108 That does not mean that the Court puts itself in the position of the Trustee and assumes the task of the Trustee in making administrative decisions: Re Wheeler; Ex parte Wheeler v Halse (1994) 54 FCR 166 at 169.
109 Rather, it empowers the Court to judicially review the Trustee’s administrative decision.
110 The Court is given the widest discretion to review any act, omission or decision of a Trustee. The only bounds to the exercise of that discretion are that the Court must act judicially and be satisfied that it is just and equitable to make the order sought.
111 In Re Tyndall (1977) 30 FLR 6, Deane J said at 9-10:
‘Once the matter is properly before the court, the court is empowered – and obliged – to make such order in this matter as "it thinks just and equitable."
It was strongly submitted by Mr Urquhart for the Official Receiver that, notwithstanding the variation in wording, the authorities on the English legislation and the statements by Clyne J to the effect that those authorities were applicable to the provisions of s 148 of the Bankruptcy Act 1924, should lead me to conclude that, in an application under s 178, the court should only interfere with a relevant act, omission or decision of the Trustee if it appeared that the Trustee had acted absurdly or unreasonably or in bad faith. I have reached the conclusion that this submission cannot be accepted. In my view, the wording of s 178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omission or decision of the Trustee, the court is only empowered to interfere with the Trustee’s act, omission or decision if he is of the view that the Trustee has acted absurdly or unreasonably or in bad faith. Once the matter is properly before the court, the court is, by the express words of s 178, empowered (and, as I have said, obliged) to make such order in the nature as it thinks just and equitable.’
112 The applicant is obliged to establish that there are grounds for reviewing the decision of the Trustee and, if those grounds can be established, that it is just and equitable for the Trustee to be directed to withdraw the objection: Re Wheeler; Ex parte Wheeler v Halse (1994) 54 FCR 166 at 170.”
His Honour went on to say that it is not appropriate for a Trustee to refuse to withdraw an objection to punish a bankrupt. There must be some utility in continuing the administration. This case was decided after the amendments which brought in the special grounds of objection.
Nguyen v Pattison [2005] FCA 650 is an appeal from a decision of a Federal Magistrate heard by Weinberg J. His Honour said at [72] that he could see nothing in the amendments, introduced in 2002, that detracts from the force of what Deane J said in Re Tyndall that the wording of s.178 confers the "widest possible discretion" as to the appropriate order to make. As to the significance of "special grounds", His Honour said at [74]:
“Nor would it be proper for the court to give no weight, or inadequate weight, to the fact that some of the grounds upon which the objection was based are designated "special grounds". That of itself is a matter of some significance, and tends against automatically lifting such an objection even where remedial steps have been taken.”
In the following paragraph, [75] His Honour makes it clear that he considers any remedial steps taken by the applicant prior to the hearing of the application by the court are relevant.
At [25] Weinberg J refers to a decision of Emmet J, Thomas v Donnelly (No 2) [1997] FCA 1142 in which Emmet J says that a trustee is required to take into account not only the interests of creditors, but also the interest of the bankrupt and the community generally. His Honour said:
“A Trustee is of course an officer of the court and, in the exercise of his powers and functions, he is required to take into account not only the interests of creditors but also the interest of the bankrupt and of the community generally. In exercising his powers, the Trustee should have in mind the object of enforcing careful and moral conduct on the part of the debtor and to uphold the commercial morality of the community.”
Considerations
Section 149B(2) provides that the Trustee must file the notice of objection if the Trustee believes that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged. There is no other way for the Trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged. The evidence shows that the Trustee’s decision to file the notice of objection was correct.
The applicant ignored his obligation to provide the questionnaire for the period 30 April 2002 to 29 April 2003 despite six reminder letters. His explanation for not doing so are that he thought he had already provided the information. This is unsatisfactory. He did not provide the information until after the Trustee has objected to his discharge from bankruptcy.
Questionnaires for subsequent periods in his bankruptcy were supplied when requested. The failure to supply the information for the first period did not affect the interests of the creditors because the applicant had insufficient income for the making of an assessment requiring him to contribute some of its income to the bankruptcy.
That the Trustee's reason for objecting is one of the "special grounds" is relevant. So too is the applicant's ignoring repeated requests to provide the questionnaire, only doing so after his discharge from bankruptcy was objected to.
There are competing contentions from the applicant and the Trustee about the utility of continuing the bankruptcy. The Trustee says that the legal basis assisting the Trustee to require the bankrupt to assist in the two pieces of continuing litigation will be strengthened. Although a discharged bankrupt is required to continue to assist the Trustee, (s.152 Bankruptcy Act), the Trustee submits that this position is stronger under s.77, which applies during bankruptcy. In addition, the Trustee submits that his ability to continue holding the bankrupt’s passport (s.77(1)(a)) gives utility to the continuation of the bankruptcy.
The applicant submits that he has remedied his failure to provide the questionnaire and that there is no utility in the continuation of the bankruptcy. The applicant submits that a disadvantage in continuing the bankruptcy is the continuing cost of the administration for a further period. The Trustee's response to this submission is that the application is premature. Once the issues about the property and proof of debt are resolved, the Trustee can then consider whether he will withdraw his objection, and if he does not, this is the time when the applicant should apply to the court.
Weinberg J said in the passage from Nguyen quoted above that the fact that the ground is a "special ground" "itself is a matter of some significance, and tends against automatically lifting such an objection even where remedial steps have been taken". Here, although a remedial step has been taken, it was taken at a time when the failure could not be completely remedied, although that it did not affect the creditors is relevant.
The administrator will be assisted in the property claim, and in resisting the liquidator’s proof of debt if the bankrupt cooperates. This is particularly so, in the case of the proof of debtor the substance of that claim is that the bankrupt knowingly permitted a company of which he was the sole director, and shareholder to trade while insolvent. The Trustee will have considerable difficulty in dealing with this claim without the cooperation of the bankrupt.
The bankrupt’s failure to complete and return the questionnaire despite six reminder letters is some indication of his attitude to his responsibilities towards the administrator. Against this is the fact that he completed the subsequent questionnaires.
The Trustee’s submission that the provisions of the Bankruptcy Act required the bankrupt to assist him are stronger if the bankruptcy continues, is not so much the relevant point in determining whether there is efficacy in continuing the bankruptcy. The relevant point is that if the bankruptcy continues, the incentive for the bankrupt to assist the Trustee is this. The sooner the property and proof of debt disputes are resolved; the sooner the Trustee’s reason for objecting to the discharge from bankruptcy will be gone. The continuation of the bankruptcy provides a strong incentive to the bankrupt to cooperate. This means that there is a significant efficacy in the continuation of the bankruptcy.
The efficacy in the continuation of the bankruptcy and the fact that the reason for objection is a "special ground" combined with the general public interest grounds which have been referred to, when balanced against the action of the bankrupt in remedying the failure to provide the questionnaire. The bankrupt’s interest in being discharged from the bankruptcy means that the proper exercise of the discretion is to refuse the application.
I certify that the preceding thirty-four (34) paragraphs are a true copy of the reasons for judgment of Phipps FM
Associate:
Date: 12 May 2006
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