Bendel and Inspector-General in Bankruptcy - [2001] AATA 179

DECISION AND REASONS FOR DECISION [2001] AATA 179

ADMINISTRATIVE APPEALS TRIBUNAL )

) No V1999/995, V2000/45 and

GENERAL ADMINISTRATIVE DIVISION          )          V2000/225
           Re      DAVID BENDEL
  Applicant
           And    INSPECTOR-GENERAL IN BANKRUPTCY
  Respondent

DECISION

Tribunal Mr B. H. Pascoe, Senior Member Mr D. L. Elsum, AM, Member

Date9 March 2001
PlaceMelbourne

Decision The Tribunal affirms the decisions under review in applications V1999/995 and V2000/225. The Tribunal remits the decision under review in V2000/45 to the respondent for reconsideration pursuant to section 42D of the Administrative Appeals Tribunal Act 1975 with liberty to the applicant to request a further hearing if such reconsideration is in dispute.

...….(Sgd) B. H. Pascoe.......
Senior Member
CATCHWORDS
BANKRUPTCY – objection to discharge – whether failure to disclose beneficial interest in asset – whether failed to explain why no money received as a result of disposal of asset – loan account in trust accounts – interest in accounting practice – whether expenses deductible from income for assessment of contribution
Bankruptcy Act 1966

REASONS FOR DECISION

9 March 2001 Mr B. H. Pascoe, Senior Member Mr D. L. Elsum, AM, Member

These are application to review decisions of the respondent which affirmed decisions of the applicant's trustee in bankruptcy to file notices of objection to the discharge of the applicant from bankruptcy. These notices were filed pursuant to section 149B of the Bankruptcy Act 1966 ("the Act"). The applicant was made bankrupt on 19 April 1996.
At the hearing the applicant was unrepresented and the respondent was represented by Mr J. Lenczner of counsel. Evidence was given by the applicant, Mr David Bendel; his son, Mr Steven Bendel, and Mr T. McDonald, an accountant.
There were three grounds of objection pursuant to section 149D(1)(g)(ii) and section 149(1)(n) of the Act. These two subsections provide:
"149D(1) The grounds of objection that may be set out in a notice of objection are as follows:
(a)…
…
(g)at any time during the period of 5 years immediately before the commencement of the bankruptcy, or at anytime during the bankruptcy, the bankrupt:
(i)…
(ii)disposed of property but failed to explain adequately to the trustee why no money was received as a result of the disposal or what the bankrupt did with the money received as a result of the disposal;
(h)…
…
(n) the bankrupt failed, whether intentionally or not, to disclose to the trustee the bankrupt's beneficial interest in any property."

Two of the objections were pursuant to section 149D(1)(n) and stated:

"1.The bankrupt failed, whether intentionally or not, to disclose to the trustee a beneficial interest in property viz a loan due to the bankrupt from Sash Investments Pty Ltd as trustee for the Susan Bendel Family Trust.
2.The bankrupt failed, whether intentionally or not, to disclose to the trustee a beneficial interest in property viz an interest in the accounting practice 'Bendel Partners'. "

The third objection under section 149D(1)(g)(ii) was allied to the first ground in that the trustee alleged that the bankrupt had failed to provide details of the disposal by him of the loan account in the Susan Bendel Family Trust.

The background of the first and third objections was that, under consent orders of the Family Court, dated 22 November 1994 following the divorce of David Bendel and Susan Bendel, Susan Bendel assigned and released David Bendel or his nominee all her right, title and interest (including any interest she may have standing to her credit in any loan account) in Sash Investments Pty Ltd as trustee of the Susan Bendel Family Trust. In financial statements of the trust as at 30 June 1995, apparently prepared in approximately May 1996, a debt of $669,938 to Susan Bendel was included. It was that debt which the trustee believed had not been disclosed. In seeking review by the respondent of the trustee's objection, a copy of the balance sheet of the Susan Bendel Family Trust as at 30 June 1996 was provided which showed no liability to Susan or David Bendel. The trustee took the view that no satisfactory explanations as to the reasons for the disappearance of the apparent asset as at 30 June 1995 had been provided and gave notice of the objection under section 149D(1)(g)(ii).
Prior to consideration of the evidence, it should be said that the Tribunal had difficulty in establishing the facts of this matter. While Mr David Bendel did not have legal representation, he is an accountant of long experience and it would have been expected that he could have explained in clear terms the basis upon which the debt of $669,938 appeared in the trust accounts and subsequently disappeared. Unfortunately this did not happen. It seems the origins of his bankruptcy was a dispute with a firm of accountants, Lowe Lippmann, of which he was formerly a partner. Clearly, the dispute has become bitter and Mr Bendel found himself unable to concentrate his evidence on the relevant matters to the issues before the Tribunal. Mr Bendel produced a large number of documents and it has been a major task to distil from those documents and the oral evidence of Mr Bendel the facts relevant to these applications.
Mr Bendel denied that he received anything of value from his former wife, Susan. He said that the accounts of the Susan Bendel Family Trust were prepared by his son, Steven, as a matter of some urgency in or about May 1996 for the purposes of preparing and lodging then overdue income tax returns. He said that the cheque books, bank records etc. were at the Supreme Court as a result of legal action between himself and Lowe Lippmann. Mr Bendel could not recall the degree of his personal involvement with the preparation of the accounts but thought that he may have provided some assistance to Steven. As a result of the non-availability of some records, the accounts were said to have been prepared on a so-called "asset betterment" basis by including investments and assets based on accounts of other entities. Mr Bendel maintained that the loan account in the name of Susan Bendel was effectively a suspense account as an offset against increases in assets. It was this account which totalled $669,938 which was a principal issue in this dispute.
In relation to Mr Bendel's bankruptcy, Sash Investments Pty Ltd as trustee of the Susan Bendel Family Trust lodged a proof of debt claiming that it was owed $400,221 plus interest by Mr Bendel. The proof was rejected and application was made to the Federal Court to, among other matters, review the trustee's decision to reject the proof of debt. Heerey J found that the relevant debt was statute-barred and affirmed the rejection of the proof of debt. However, His Honour also said:
"In any event there is a quite independent ground for rejecting the claim. This arises from the fact that the books of account show an indebtedness to Susan Bendel appearing in the balance sheets of the company as at 30 June 1995 in the amount of $699,938. Since Mr Bendel acquired all the interests of Mrs Bendel in the trust there would be a credit balance and not a debit balance in his favour. …"
Mr Bendel maintained that any scrutiny of the relevant accounts by him was limited to the income, tax liabilities, transactions with his former firm and the debt due by him to the trust. He said that he realised that the accounts were incorrect after Heerey J referred to the substantial amount owing to Susan Bendel. He said that, subsequently, he was involved in extensive litigation with Lowe Lippmann which was not resolved until 1999. Only then was he able to concentrate on reconstructing the accounts for the Susan Bendel Family Trust. These reconstructed accounts showed Susan Bendel owing $22,885 to the trust in lieu of the previous debt of $669,938 owing to her. He maintained that Steven had, in the original accounts, brought to account certain income which did not eventuate, particularly after a settlement with Lowe Lippmann in December 1999. Mr Bendel instanced an amount of some $13,000 of an alleged trust distribution from Lowe Lippmann which had been set off against a reduction of goodwill.
It is appropriate to comment that, while reference has been made to Mr Bendel having been a partner in Lowe Lippmann, this is not strictly correct. The legal structure appeared to be that a company called Skillmark Investments Pty Ltd (formerly called Bendel Partners Pty Ltd) was trustee of the Bendel Bick Unit Trust which was a unit holder in the Lowe Lippmann Unit Trust which carried on the accounting practice. Bendel Bick Unit Trust had formerly carried on an accounting practice operated by Mr Bendel and a Mr Mark Saltzman. This practice was merged with that of Lowe Lippmann. The Bendel interests in the income of the merged practice apparently flowed from Lowe Lippmann Unit Trust to the Bendel Bick Unit Trust to Susan Bendel Family Trust No. 2 to the Susan Bendel Family Trust which is the trust in which the disputed loan account featured. This trust, in addition to the ultimate interest in Lowe Lippmann, had investments in a variety of other companies and unit trusts mainly involved in property development. Mr Bendel ceased involvement with the Lowe Lippmann practice in 1992. He became a consultant to Evans Partners Pty through Skillmark Investments until 1995 when he commenced operations on his own account through a unit trust.
The relevance of this summary of the structure under which Mr Bendel operated is that it involved a complex web of trusts. Most, if not all, of the investments of the Susan Bendel Family Trusts were in entities for which the books and records were maintained by David and/or Steven Bendel. It is from these books and records that Steven was said to have prepared the Susan Bendel Family Trust accounts for the year ended 30 June 1995. In his evidence, Steven Bendel said that, in 1996, he prepared accounts for the purpose of lodging income tax returns and for the proof of debt in his father's bankruptcy. He prepared the accounts from those of the related entities, took up income from those entities and sought to reconcile assets and liabilities. He said that he used a suspense account entitled "Susan Bendel Loan Account" to balance. He maintained that he did not want to credit David Bendel account because of the bankruptcy and wished to maintain the same opening balance of his father's account intact. He said that he used Susan Bendel as the account "because she was then out of the trust". He acknowledged that he would have sought the assistance of David Bendel at the time because of his background knowledge and experience. Steven said that he had been comfortable with the accounts in 1996. He was uncertain but believed that he had provided some assistance to his father in preparing reconstructed accounts. It is relevant to note that the copies of the relevant journal entries in relation to the year ended 30 June 1995 show many items credited to David Bendel account. However, towards the end of the journal entries was one debiting David Bendel and crediting Susan Bendel with an amount of $739,225. Steven's explanation of this entry was that it was to bring David Bendel's account back to the year's opening balance of $400,221 which was the amount for which a proof of debt was lodged.
While recognising the complexity of the structure within which the Bendel family operated, it was of some concern that Mr Bendel was not able to explain the differences between the original 1995 accounts of the Susan Bendel Family Trust prepared in 1996 and his reconstructed accounts prepared in 2000. At one point he stated that he could not explain the differences "because the original accounts were wrong". Mr McDonald, an accountant working with Mr Bendel's trustee in bankruptcy, Mr Pattison, said that he attended meetings with David and Steven Bendel after February 2000 for the purpose of obtaining further documentation and explanations in relation to the original 1995 accounts. Subsequently, Mr David Bendel had said that he was abandoning the original accounts as they were incorrect and that he would prepare the reconstructed accounts. Mr McDonald said that he was unable to accept the reconstructed accounts as he had not been able to obtain supporting documentation or satisfactory explanations.
The Tribunal is left with a question of whether Mr David Bendel has embarked on a deliberate campaign of obfuscation or whether he does not have the ability to concentrate on the issues and, as an experienced accountant, explain the variations between the two sets of accounts. On the limited relevant information before us, it would appear that some part of the difference has arisen from the use of hindsight after the cessation of some litigation and resultant settlements. This does not necessarily mean that the original accounts were incorrect at the time that they were prepared. It appears also that, when the original accounts were being prepared, Steven assumed, possibly correctly, that increases in the trust assets had come from David Bendel resulting in the entries to the credit of his account. However, prior to finalising the accounts and with the then knowledge of bankruptcy, those credits were transferred out of David Bendel's account to the account of Susan Bendel. We are not satisfied that David Bendel did not have a major role in the preparation of the accounts. While we accept that, on the basis on which the accounts were prepared in 1996, it is likely that the disputed amount of $669,938 is incorrect, we do not accept that there was no credit balance in a loan account. Whether such loan account should have been described as David Bendel loan account or Susan Bendel loan account is immaterial given that, after November 1994, any amounts owing by the trust to Susan Bendel became the property of David Bendel. Mr Bendel has had many opportunities during the pre-hearing procedures of this Tribunal and at the hearing to provide evidence to satisfy the respondent and, ultimately, the Tribunal that the relevant asset of the loan account to the trust either did not exist or was some other figure. He has failed to do so. As a consequence, the Tribunal has no option but to affirm the decision of the respondent to confirm the objection to discharge on the grounds of failing to disclose the beneficial interest in the Susan Bendel Family Trust.
It also follows that, with no satisfactory explanation as to why no money was received from the asset, the respondent's confirmation of the objection under section 149D(1)(g)(ii) should be affirmed.
The remaining issue is the ground of objection that Mr Bendel failed to disclose his interest in the accounting practice of Bendel Partners. Mr Bendel denied that he has an interest in the accounting practice trading as Bendel Partners. He said that the practice was formerly owned by the Bendel Bick Unit Trust but was sold to a new unit trust, Bendel Partners Unit Trust with Skillmark Investments Pty Ltd as trustee on 6 April 1995. The purchase price was set at $165,000 payable over five years. Mr Bendel said that the funds from the sale were used primarily for payment of legal fees. Subsequently, Steven Bendel became the sole trustee of the unit trust. Mr Bendel accepted that a tax agent registration was applied for and granted on 1 July 1995 in the name of Bendel Partners as a partnership with David and Steven Bendel as partners and David Bendel as nominee. Mr Bendel said that this was done as the most expedient way of obtaining registration given the urgency to enable client income tax returns to be lodged. He said that Steven, then some 25 years old, was not qualified to be a nominee. On 1 July 1996, Steven became registered as an individual tax agent and the partnership registration was cancelled. Mr Bendel maintained that Skillmark Investments Pty Ltd was the registered owner of the business name in its capacity as trustee of the Bendel Partners Unit Trust and had always conducted the business in that capacity. Steven Bendel said that he had called at the office of the Tax Agents' Board and was given a partnership application form. He maintained that he knew that there was no partnership trading as Bendel Partners but thought that the girl at the Tax Agents' Board knew best. He said that, "…in addition, I wanted to distance myself from Skillmark. I always intended it to be Steven Bendel which subsequently took place". Mr David Bendel denied that he retained any interest in the goodwill of the practice and maintained that he could not necessarily take clients with him if he wished to commence sole practice. He said that he assists Steven in the practice, particularly in billings and collections and receives a salary from the practice.
Again, it is difficult to believe that a clear picture of the involvement of Mr David Bendel in Bendel Partners emerged in the hearing. It seems that the business name was owned by Skillmark until, it is assumed, 1 July 1996 when Steven became the sole owner of the name as trustee of the Bendel Partners Unit Trust. However, Steven was fully employed as a school teacher until the end of 1994. He said that, in 1995, he decided to become an accountant and enrolled in part-time study. Having, at the age of 25, commenced study to be an accountant it would appear highly unlikely that, in 1996, he was capable of conducting a public accounting practice without significant involvement of his father and the retention of clients by that involvement. It is relevant to note that the business name of Bendel Partners was first registered on 31 March 1995 with Skillmark Pty Ltd as the registered owner. We are satisfied that there was a practice being carried on prior to that date and at the date of bankruptcy with Mr David Bendel as the principal person involved. In his decision of 26 November 1997, Heerey J in the Federal Court said (at page 3) "Mr Bendel now carries on, as I find, an accountancy practice in partnership with his son Mr Steven Bendel under the name of Bendel Partners". And at page 13 of the decision Heerey J said:
"…it is apparent that in truth he is conducting his accountancy practice in partnership with his son. His interest in the partnership was not disclosed in his statement of affairs but was in an application for registration as a tax agent. Mr Steven Bendel has a limited interest in the partnership but there is no one else who could be enjoying the benefits of the substantial income derived (a gross of some $283908.95) other than Mr Bendel himself."
While both Mr David Bendel and Mr Steven Bendel sought to have the registration of a partnership as a tax agent as an error caused by Steven's inexperience, the fact of that registration is significant. Under section 251L of the Income Tax Assessment Act 1936, only a registered tax agent may charge a fee for preparation of an income tax return or objection or in relation to the transaction of any business on behalf of a taxpayer in income tax matters. It was only that partnership which was registered which could charge fees for income tax related work. No company, trust or Steven Bendel could charge fees. As a result it would seem clear that a partnership derived such income. If the income was treated as income of a trust it could only have been income already derived by the partnership. It is difficult to accept that Mr Bendel, with his experience, did not appreciate the difference between a partnership and a company carrying on a business as trustee nor recognize the consequences of registering as a partnership. There is clear provision for registration of a company as a tax agent. Similarly, Steven, for all his inexperience, appeared to have been well aware of who was the purported legal owner of the business but accepted the registration as a partnership without question. Again, we are not satisfied that Mr David Bendel has openly and properly explained the degree of his interest or equity in the accounting practice as at November 1994 or subsequently. Again, if follows that the decision of the respondent relative to the non-disclosure of a beneficial interest in the accounting practice should be affirmed.

While we were left, after three days of hearing, with the concern that Mr Bendel may have deliberately sought to confuse the issue and the evidence, we are unable to say that he sought to provide false documents or lied to the Tribunal. We were, however, aware that in the decision of Heerey J His Honour said (at page 13) "Mr Bendel has attempted to deceive this Court by the use of fraudulent documents in relation to the alleged debt of Sash Investments" and (at page 17) "Mr Bendel displayed no contrition after being caught out in a brazen attempt to deceive this Court by the use of false documents". These comments related to purported acknowledgment of debt sworn to have been signed in each of the years 1988 to 1995. It was subsequently admitted that the documents were prepared after April 1996 and backdated. We do, however, accept as indicated earlier, that Mr Bendel is clearly obsessed with his dispute with Lowe Lippmann to the extent that his judgement may be somewhat clouded.
A final matter is that on 19 January 2000, Mr Bendel lodged a further application (V2000/45) to review another decision of the respondent which varied a decision of the trustee to make an assessment on income for the contribution assessment period from 25 January 1999 to 24 January 2000. The dispute centred on whether certain expenses relating to motor vehicle and travel, office rental and service fees and home office expenses should be deducted from income. No reference was made to this application at the hearing and it is not clear whether Mr Bendel seeks to pursue it. It would appear that the appropriate course is to remit the matter to the respondent under section 42D of the Administrative Appeals Tribunal Act 1975 to reconsider the assessment with liberty to Mr Bendel to apply for a further hearing if such reconsideration remains in dispute.

I certify that the eighteen (18) preceding paragraphs are a true copy of the reasons for the decision herein of
Mr B. H. Pascoe, Senior Member
Mr D. L. Elsum, AM, Member
Signed:         .....................................................................................
  Personal Assistant
Date/s of Hearing  20, 21 and 24 November 2000
Date of Decision  9 March 2001
The Applicant  Self-represented
Counsel for the Respondent    Mr J. Lenczner
Solicitor for the Respondent    Australian Government Solicitor