Appleby v Carter as trustee of the Bankrupt Estate of Appleby

[2019] FCCA 564

FEDERAL CIRCUIT COURT OF AUSTRALIA

APPLEBY v CARTER AS TRUSTEE OF THE BANKRUPT ESTATE OF APPLEBY & ANOR [2019] FCCA 564

Catchwords:
BANKRUPTCY – Sufficiency of s.139ZL notice – whether sufficient particulars supplied as to basis of requirement for trustee of family trust to make weekly payments to trustee in bankruptcy over a 128 week period – basic particulars omitted in notice – recipient of notice not provided with sufficient particulars to allow for a full appreciation as to why payments are required to be paid from trust funds – notice set aside.

Legislation:

Bankruptcy Act 1966 (Cth) ss.139ZL, 139ZO, 139ZK, 139ZM, 139ZA(3), 139ZQ, 139ZQ(2), 139ZL(2), 139ZL(1)

Cases cited:

RH Mackay & Associates v Sullivan [2005] FMCA 123
Re Bond; Ex Parte Bond v Caddy (No 1) (1994) 11 WAR 330
Re Lucera: Ex parte Official Trustee in Bankruptcy v Lucera (1994) 53 FCR 329

Applicant: GREGORY DAVID APPLEBY

Respondent: MOIRA KATHLEEN CARTER AS TRUSTEE OF THE BANKRUPT ESTATE OF GREGORY DAVID APPLEBY

Second Respondent: OFFICIAL RECEIVER

File Number: BRG 980 of 2018

Judgment of: Judge Egan

Hearing date: 1 March 2019

Date of Last Submission: 1 March 2019

Delivered at: Brisbane

Delivered on: 7 March 2019

REPRESENTATION

Counsel for the Applicant: Mr P. Jeffrey

Solicitors for the Applicant: Porta Lawyers

Counsel for the Respondent: Mr C. Ryall

Solicitors for the Respondent: Preston Law

IT IS ORDERED:

1. That the application filed on behalf of Gregory David Appleby on 18 September 2018 be granted.

2. That the notice issued on 7 June 2018 pursuant to s. 139ZL of the Bankruptcy Act 1966 be set aside pursuant to s. 139ZM(1) of the Act.

3. That the First Respondent pay the Applicant’s costs of and incidental to the proceedings.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT Brisbane

BRG 980 of 2018

Gregory David Appleby

Applicant

And

Moira Kathleen Carter As Trustee of the Bankrupt Estate of Gregory David Appleby

First Respondent

OFFICIAL RECEIVER

Second Respondent

REASONS FOR JUDGMENT

1. On 7 June 2018, a delegate of the Official Receiver caused a notice to be issued to “The Proper Officer, The Trustee for Appleby Family Trust” pursuant to the provisions of s. 139ZL of Bankruptcy Act (1966)(Cth). Annexed to these reasons and marked with the letter “A” is a copy of that notice.

2. It is of note that a person who refuses or fails to comply with a notice issued under s. 139ZL of the Act is guilty of an offence punishable upon conviction by imprisonment not exceeding six (6) months. [1] Such provision is penal in nature.

   [1] See s. 139ZO of Bankruptcy Act.

3. Sections 139ZK and 139ZL of the Act provide as follows:

   SECT 139ZK

   
   
   

   Persons to whom Subdivision applies

   
   
   

   (1) This Subdivision applies to a person:

   
   
   

   (a) from whom any money is due or accruing, or may become due, to a bankrupt; or

   
   
   

   (b) who holds, or may subsequently hold, money for or on account of a bankrupt; or

   
   
   

   (c) who holds, or may subsequently hold, money on account of some other person for payment to or on behalf of a bankrupt; or

   
   
   

   (d) who has authority from some other person to pay money to or on behalf of a bankrupt; or

   
   
   

   (e) who is liable to pay money or transfer property wholly or principally in consideration of personal services supplied by a bankrupt after the commencement of the bankruptcy, whether the services were supplied to the first-mentioned person or to some other person.

   
   
   

   (2) In subsection (1):

   
   
   

   “personal services”, in relation to a bankrupt, means personal services as defined by subsection 5(1), whether or not supplied for the payment of money, or the provision of other consideration, to the bankrupt.

   
   
   

   (3) If, apart from this subsection, money would not be due, or would not be repayable on demand, to a person, or the obligation to transfer property to a person would not arise, unless a condition were fulfilled, then, for the purposes of this section, the money is taken to be due or to be repayable on demand, or the obligation to transfer the property to the person is taken to arise, as the case may be, even though the condition has not been fulfilled.

   …
   
   SECT 139ZL
   
   Official Receiver may require persons to make payments
   
   (1) If a bankrupt is liable to pay to the trustee a contribution under section 139P or 139Q, the Official Receiver:
   
   (a) if the Official Trustee is the trustee – on the initiative of the Official Receiver; or
   (b) if a registered trustee is the trustee – on application by the trustee;
   
   may require a person to whom this Subdivision applies, by written notice given to the person, to make a payment or payments to the trustee in accordance with this section in or towards the discharge of the liability of the bankrupt to make the contribution.
   
   (2) The notice must set out the facts and circumstances, and in particular must specify the money or property, because of which the Official Receiver considers that this Subdivision applies to the person to whom the notice is given.
   
   (3) The notice may either:
   
   (a) require payment of so much of the money, or of the value of the property, as does not exceed the amount, or the total of the amounts, of the contribution that the bankrupt is liable to pay; or
   
   (b) in the case of a person who is liable to pay money to or on behalf of the bankrupt, require the person, out of each payment that the person becomes liable from time to time to make, to pay such amount as is set out in the notice until the liability of the bankrupt to pay the contribution has been discharged.
   
   (4) The notice may either:
   
   (a)  require a payment to be made immediately the money becomes due or is held, the authority becomes exercisable, the liability arises or the money or property is received, as the case requires; or

   (b)  require a payment to be made at a time or within a period set out in the notice, not being a time that occurs, or a period that commences, before the money becomes due or is held, the authority becomes exercisable, the liability arises or the money or property is received, as the case requires.
   
    (5)  After the Official Receiver has given a notice to a person under subsection (1), the Official Receiver may at any time, by a further notice given to the person, revoke or amend the first-mentioned notice.
   
   (6) If the Official Receiver gives a notice under this section, the Official Receiver must send a copy of the notice to the bankrupt and, if a registered trustee is the trustee, to the trustee.
   
   (7) A notice to be given under this section to the Commonwealth, a State or a Territory, or to an authority of the Commonwealth, of a State or of a Territory, is taken to be duly given if it is given to a person who, by any law, regulation, appointment or authority, has the function of paying, or in fact pays, money on behalf of a Department of the Commonwealth, of that State or of that Territory, or on behalf of that authority, as the case may be.
   
   (8) If a person is required by a notice under this section to pay to the trustee the value of any property, the requirement is taken to be complied with if the property is transferred to the trustee.
   
   (9) A person making a payment or transferring property in accordance with this section is taken to have been acting under the authority of the bankrupt and of all other persons concerned and is entitled to be indemnified out of the estate of the bankrupt in respect of the payment or transfer.
   
   (10) An amount payable by a person to the trustee under this section is recoverable by the trustee as a debt by action against the person in a court of competent jurisdiction.

4. The applicant is an undischarged bankrupt. He makes application pursuant to the provisions of s. 139ZM of the Act to set aside the s. 139ZL notice on the ground of invalidity. The parties agree that for the purposes of this application, the applicant is an “interested person” entitled to bring the application.

5. The sole ground relied upon by the applicant is that the notice is invalid because it is lacking in the requisite provision of particulars of the “ … facts and circumstances, … because of which the Official Receiver considers that this Subdivision applies to the person to whom the notice is given.”  Such requirement for the provision of particulars is mandatory.

6. An affidavit was filed by the first respondent in her capacity as trustee of the bankrupt estate of the applicant. In her affidavit, Ms Carter at [15] referred to Ex MKC-15 which was a letter from the applicant’s then trustee in bankruptcy to the applicant dated 25 May 2017. The letter set out amounts said to be payable by the applicant to the trustee pursuant to his income contribution obligations under the Bankruptcy Act. The letter referred to two (2) Contribution Assessment Periods (CAP 1 and CAP 2) being 15 March 2016 – 15 March 2017 and 15 March 2017 – 15 March 2018 respectively. The amount assessed as being payable by the applicant to his trustee in bankruptcy was $35,411.36. That letter was not copied in to the Trustee of the Appleby Family Trust.

7. The applicant requested a review of the income assessment amount last referred to. After further investigation, the re-assessment issued and included additional non-cash benefits as part of the applicant’s deemed income. Exhibit MKC-23 to the affidavit of Ms Carter was a letter from the applicant’s then trustee in bankruptcy to the applicant dated 14 August 2017 which set out that the contribution required to be made by the applicant as a result of his employment by the Appleby Family Trust was in the amount of $53,269.17. That letter was also not copied in to the Trustee of the Appleby Family Trust.

8. The applicant sought a further review of that assessment but was out of time in doing so, in that he failed to make application for reassessment within 60 days of the date on which he was notified of his trustee’s re-assessment, as was required by s. 139ZA(3) of the Act. The applicant failed to make any payments to the trustee in reduction of his assessed contribution amount. The Official Trustee subsequently issued the s. 139ZL notice the subject of this challenge.

9. It is not always the case that s. 139ZL notices are served upon a trustee of a family trust carrying on business where that trustee is the sister of the bankrupt, as is the case here. Often, such notices are served upon entities where the controlling minds of such entities have no idea that an employee is bankrupt. It is therefore of the utmost importance that s. 139ZL notices are so drafted that a recipient of such a notice is left in no doubt, not only as to why they have been served with the notice, but also the reason why they are being required to make payment of stipulated amounts of money to a person, or otherwise have their property charged in favour of a person, with whom they have no personal or business relationship.

10. In RH Mackay & Associates v Sullivan [2005] FMCA 123 at [25], Baumann FM (as he then was) referred with approval to the judgment of Seaman J in Re Bond; Ex Parte Bond v Caddy (No 1) (1994) 11 WAR 330 at 341 where His Honour said:

    [25]  … the words ‘alleged facts and circumstances’ in s 139ZM do not involve the sometimes difficult distinctions between questions of law, material facts, particulars and evidence which arise in other forms of proceeding, but instead are directed to the fair identification of a claim in a form which enables its adequacy to be challenged under the section. In my view the word ‘circumstances’ in s 139ZM includes an assertion of practices which are common in particular callings.”

11. At [29]-[32] of the judgment in RH Mackay it was said by Baumann FM as follows:

    [29] Mr Skinner in Submissions said it is important that Dr Mackay never challenged the Actual assessment under s 139P, as it is the assessment which grounds the issue of the s 139ZL notice. That is true, in that if the assessment had been successfully challenged and, say set aside, a notice under s 139ZL would not issue.

    [30] However this does not mean that the mere mention of the assessment by the Trustee of a liability pursuant to s 139P, establishes sufficient facts and circumstances to enable the person to whom the notice is given to be satisfied the subdivision applies to the person.

    [31] I do not believe, as the Respondent’s submissions suggest, that the special knowledge of the recipient (grounded on their letter to the trustee of 18 November 2002) can validate the Notice. The fact of that letter being delivered could well (have) been a fact and circumstance recited (and relied upon) by the Official Receiver in the Notice. I think the Notice should be capable of standing “on its own.”

    [32] The fact that it cannot do so because of its non-compliance with s 139ZL(2) means the Notice may be set aside. The Bankruptcy jurisdiction is a particularly technical area of the law, where strict compliance, if demanded by the Act must generally be observed. The clear intention of the legislature is evinced by the use of the word “must” in s 139ZL(2).

12. Section 139ZQ of the Act deals with the giving of a notice in circumstances where a person has received money or property as a result of a transaction that is void against the trustee of the bankrupt. Section 139ZQ (2) is in almost identical terms to s. 139ZL (2) and is as follows:

    “2.    The notice must set out the facts and circumstances because of which the Official Receiver considers that the transaction is void against the trustee.”

13. The case of Re Lucera: Ex parte Official Trustee in Bankruptcy v Lucera (1994) 53 FCR 329 dealt with the case of a bankrupt against whom a sequestration order was made on 12 December 1988. On 15 April 1987 the bankrupt had transferred his half share in the matrimonial home to his wife. The bankrupt’s wife became registered as the sole registered proprietor of that property on 2 July 1987. It is that transaction that was asserted by the trustee to be void. At page 338.B of the judgment of Olney J it was said as follows:

    The notice given to Mrs Lucera does not correctly identify the property said to have been received by Mrs Lucera nor does it attempt to value the “property” which Mrs Lucera received as a result of the void transaction. It is not altogether clear how a trustee in bankruptcy should value a former interest of a bankrupt as a joint tenant in his matrimonial home. It is not an interest which necessarily has a market value and it certainly cannot be assumed that it is worth half of the market value of the property as a whole. Be that as it may, the notice in this case states a value for the whole property which is not supported by evidence and further it makes an unstated, but unsupported, assumption that the value of the interest transferred by the bankrupt was valued at half of a sum thought to be somewhere near its value more than four years later. For these reasons I am of the opinion that the notice is irregular and should be set aside. If s. 139ZS(1) does not provide sufficient authority for such an order, then s 30 does. By virtue of s 139ZS(2), the notice is taken not to have been given and accordingly no liability has been created by reason of it.

14. The reasons of Olney J in Lucera make it clear that notices ought, on their face, to be clear, setting out all matters relevant to the claim to either the payment of money or the charging of property.

15. The notices in Bond v Caddy relate to a different factual scenario to that before the court, and a reading of them for comparison purposes proved of little assistance. Each notice must be looked at in the light of the peculiar facts of each case to which it relates.

16. The notice provided to the trustee of the Appleby Family Trust:

    a)Set out that the trustee of the trust was required to pay the sum of $53,269.17 by one-hundred and twenty-eight (128) instalments pursuant to s. 139ZL(1) of the Act.

    b)Made it clear that the trustee was liable to penalties for non-compliance with the notice.

    c)Stated that compulsory income contribution assessments had been made by the trustee and issued to the bankrupt pursuant to s. 139W of the Act.

    d)Enclosed a table setting out the way in which the sum of $53,269.17 had been arrived at, namely by adding together the CAP 1 and CAP 2 assessment period amounts of $26,783.32 and $26,485.85 respectively.

    e)Stated that the bankrupt was employed by the trust earning approximately $2,084.96 per week net.

    f)Stated that the “payments” set out in the notice represented a reasonable amount of the debtors net weekly income being approximately 20%.

17. The matters which the notice did not set out included the following:

    a)Particulars of how each of the CAP1 and CAP2 payments were calculated.

    b)Whether the CAP1 and CAP2 amounts were net of tax or otherwise subject to withholding tax, and if so what types of tax (income tax, fringe benefits tax, capital gains tax etc).

    c)The alleged nature of the bankrupt’s employment with the trust giving rise to the assessments.

    d)The class/category of employment allegedly carried out by the bankrupt, including whether such employment was allegedly part time or full time.

    e)The hours of employment used to calculate the assessed CAP amounts.

    f)The terms of employment.

    g)How the sum of $2,084.96 was calculated as a then net weekly wage.

18. The particulars set out in paragraph 17. above which were not included in the notice were necessary for the trustee to fully appreciate why it was that the payment of a substantial amount of money was required to be made by the trust over more than a two (2) year period.

19. As was in the case of Lucera, the notice fell short of setting out those particulars required to give proper notice to the trustee of their obligations. The notice is irregular and is set aside.

20. The Court will hear the parties as to the question of costs.

I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of Judge Egan

Date: 5 March 2019