Broadley and Inspector-General in Bankruptcy

[2006] AATA 914

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2006] AATA 914

ADMINISTRATIVE APPEALS TRIBUNAL        Nº W2005/425

GENERAL ADMINISTRATIVE DIVISION

Re:         JOHN KENNETH BROADLEY

Applicant

And: INSPECTOR-GENERAL IN BANKRUPTCY

Respondent

DECISION

Tribunal:       G.D. Friedman, Senior Member

Date:             26 October 2006

Place:            Perth

Decision:The Tribunal affirms the decision under review.

(sgd) G.D. Friedman

Senior Member

BANKRUPTCY - objection to automatic discharge of bankruptcy - special grounds of objection - whether forgetfulness and lack of business skills constitute "reasonable excuse" - whether reasons for reasonable excuse can enable cancellation of objection

Administrative Appeals Tribunal Act 1975 s 43(1A)(1)(a)

Bankruptcy Act 1966 ss 149C, 149D(1)(d),(1)(ma), 149N(1)(a), (1)(b), (1)(c), (3)

Inspector-General in Bankruptcy v Nelson (1988) 86 FCR 67

Nguyen v Pattison (2005) 86 ALD 43

REASONS FOR DECISION

26 October 2006 G.D. Friedman, Senior Member   

1.        John Broadley was made a bankrupt by order of the Federal Court of Australia on 3 September 2002 for a period of 3 years.  On 10 June 2004 Mr A. Jonsson became the trustee of the bankrupt estate in place of the original trustee. 

2.        By Notice of Objection to Discharge dated 9 August 2005 Mr Jonsson objected to Mr Broadley’s automatic discharge from bankruptcy on four grounds.  On 21 November 2005 the respondent upheld the objections on two grounds, extending the bankruptcy to 8 years.

ISSUES

3.        The issues before the Tribunal are whether the grounds for the objection to automatic discharge of bankruptcy were made out, and whether the objections may be cancelled.

LEGISLATION 

4. Section 149D(1)(d) and s 149D(1)(ma) of the Bankruptcy Act 1966 (the Act) are special grounds of objection, which must not be cancelled if there is sufficient evidence to support the existence of at least one special ground and Mr Broadley fails to establish that he had a reasonable excuse for the conduct or failure that constituted the special grounds.  The sections provide:

(1)       The grounds of objection that may be set out in a notice of objection are as follows:

…

(d)       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;

…

(ma)     the bankrupt intentionally failed to disclose to the trustee the bankrupt’s beneficial interest in any property.

5.        Section 149N of the Act provides:

(1)       On a review of a decision, if the Inspector‑General is satisfied that:

(a)the ground or grounds on which the objection was made was not a ground or were not grounds specified in subsection 149D(1); or

(b)there is insufficient evidence to support the existence of the ground or grounds of objection; or

(c)the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or

(d)a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled;

the Inspector‑General must cancel the objection.

(1A)     An objection must not be cancelled under subsection (1) if:

(a)the objection specifies at least one special ground; and

(b)there is sufficient evidence to support the existence of at least one special ground specified in the objection; and

(c)the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted the special ground.

For this purpose, special ground means a ground specified in paragraph 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (k) or (ma).

…

(3)       If the Inspector-General is not satisfied as mentioned in subsection (1), the Inspector-General must confirm the decision.

DID MR BROADLEY INTENTIONALLY FAIL TO DISCLOSE TO THE TRUSTEE HIS BENEFICIAL INTEREST IN ANY PROPERTY (s 149D(1)(ma))?

6.        In his Statement of Affairs lodged with the Insolvency and Trustee Service Australia on 30 September 2002 Mr Broadley failed to disclose any superannuation or life insurance policies.  Documents available to the Tribunal show that Mr Broadley had an interest to the value of $214,763 in the Broadley Auto Group Management Superannuation Fund (the superannuation fund) as at 30 June 1999.  The superannuation fund also deposited $105,000 into the bank account of Firefoil Pty Ltd on 27 July 2000.  These documents indicate that Mr Broadley, a trustee of the superannuation fund, had failed to disclose a significant interest in it.

7.        In his statement of evidence dated 30 June 2006  (Exhibit A3) Mr Broadley said:

8.        Insofar as I may have had an interest in any superannuation fund or life insurance policy, I did not at the time I prepared my statement of affairs recall having any such interest.

He stated that at the time he had no recollection of any interest held in the superannuation fund or an AMP Retirement Savings Account (AMP).

8.        In oral evidence Mr Broadley stated that he left school after Year 12 and attended some classes at a technical college before embarking on a career as a salesperson, and he was successful at selling office equipment.  He said that he decided to try operating his own business, and in 1982 he became the franchisee of an authorised Ford dealership in Cairns, Queensland.  Mr Broadley told the Tribunal that the business was successful, and he relied on various managers to assist him so that he could concentrate on selling motor vehicles.  He explained that under the terms of the franchise a firm of accountants was engaged to maintain the financial side of the business, and that he signed whatever forms were presented to him.  He admitted that he had no real knowledge of those forms, or particular interest in them.

9.        Mr Broadley stated that the airline pilots’ strike in 1989 precipitated a severe downturn in the economy in Cairns, and that his business suffered accordingly, and he sold it in 1997.  He returned to Perth and bought a Holden dealership, which he sold within 12 months and commenced an online Yellow Pages marketing business.  Mr Broadley stated that the business was not successful, and it closed in about 2000.  He had no money, his marriage had broken down, and he no longer had any business connections.  Mr Broadley said that he is now semi-retired, and helps his son operate several restaurants, but has no ownership interest in any business.

10.      Under cross-examination Mr Broadley agreed that he was a successful salesperson but an unsuccessful businessperson.  In respect of the superannuation fund he agreed that he had contributed during the Cairns motor dealership, but that he had exhausted most of the funds trying to maintain the business after the pilots’ strike.  He added that the fund was closed a number of years ago.

11.       There are four companies on which the trustee relied in asserting that Mr Broadley had failed to provide information in his Statement of Affairs: Prophill Pty Ltd (Prophill), Bembray Pty Ltd (Bembray), Broad Family Pty Ltd (Broad Family) and Captam Pty Ltd (Captam).  In respect of Captam, he said that he was not aware that he had been a director, and had no recollection of signing any Australian Securities & Investments Commission forms.  Similarly, he said that Broad Family only existed for 12 months and he had no knowledge of the purpose of the company or of signing any forms appointing him as director.  In respect of AMP Mr Broadley stated that he had no knowledge of the account, and did not recall signing relevant forms.

12. The Tribunal finds that Mr Broadley’s evidence was credible and frank. He admitted that he relied on professional advice when conducting his business affairs, and agreed that he concentrated on sales, which was his greatest interest and was the area in which his skills lay. The Tribunal is satisfied that he signed whatever documents were placed before him, and he saw no reason to become involved with the financial side of his businesses. Although in hindsight he might have been somewhat naïve and not familiar enough with some aspects of the businesses, his actions reflect his lack of commercial experience and his reliance on his sales skills. For these reasons the Tribunal finds that Mr Broadley did not intentionally fail to disclose to the trustee a beneficial interest in property, being an interest in a superannuation fund, under s 149D(1)(ma) of the Act.

DID MR BROADLEY FAIL TO COMPLY WITH A REQUEST TO PROVIDE INFORMATION ABOUT PROPERTY OR INCOME (s 149D(1)(d))?

13.      Documents available to the Tribunal indicate that Mr Broadley had not failed to provide information on Prophill.  In respect of Broad Family, the company was not mentioned in the Statement of Affairs even though he was a director and shareholder between 10 September 1998 and 21 September 1999.  In respect of Bembray Mr Broadley conceded that he held beneficial ownership of shares, although he said that these were held in trust for him and had little value.  In respect of Captam, Mr Broadley said in Exhibit A3:

Insofar as the statement did not disclose that I did have an interest in shares in any company when in fact I did, I would have only omitted it from [my] statement of affairs because at the time I would have forgotten that to be the case.  Similarly, where I did not state in my statement of affairs that I was a director of a company when in fact I was, I didn’t state that because (except in the case of Captam Pty Ltd (“Captam”) I had forgotten that I was such a director.  

Documents indicate that Mr Broadley was a director between 8 October 2001 and 3 December 2001.

14.      Mr Broadley concedes that he failed to disclose shareholdings, and the Tribunal finds that the trustee had made a written request that he provide a Statement of Affairs, and he failed to comply with that request under s 149D(1)(d) of the Act.

DID MR BROADLEY HAVE A REASONABLE EXCUSE FOR FAILING TO COMPLY WITH THE REQUEST UNDER S 149D(1)(d)?

15.      The Tribunal accepts that forgetfulness and a lack of awareness of the role of a director of various companies played a major part in Mr Broadley’s failure to comply fully with the request.  The Tribunal finds that his explanation constitutes a reasonable excuse.

SHOULD THE OBJECTION UNDER S 149D(1)(d) BE CANCELLED?

16. Mr Christensen, on behalf of Mr Broadley, said under s 149C of the Act a notice of objection must state the reasons for the trustee objecting to discharge, but the requirement to provide written reasons does not apply to the special ground of s 149D(1)(d). He stated that the trustee provided reasons but no evidence to substantiate the objection, and submitted that if reasons are given then the trustee has offered those reasons for review. Otherwise there would be no possibility of cancelling an objection made on a special ground. This would amount to punishment, which would be inappropriate (Inspector-General in Bankruptcy v Nelson (1988) 86 FCR 67).

17.      Mr Christensen submitted that if s 149N(1)(c) of the Act is not subject to review then the legislation makes a mockery of the situation where a bankrupt has a reasonable excuse but cannot obtain a discharge from bankruptcy.  He said that the trustee ought not to have lodged the objection, and the objection should be cancelled.

18.      The respondent submitted that in order to succeed in obtaining a cancellation of a special ground of objection Mr Broadley must show that at least one of the conditions in s 149N(1) of the Act applies and that the circumstances in s 149N(1A) of the Act do not apply, otherwise the Tribunal must confirm the decision under s 149N(3) of the Act.

19.      In Nguyen v Pattison (2005) 86 ALD 43 Weinberg J stated at paragraph 38, without apparent disapproval, that the Federal Magistrate (whose decision was the subject of appeal) observed:

It appears clear that the legislature intended that establishing a ‘special ground’ for giving a notice objecting to a bankrupt’s discharge is now intended to be sufficient evidence to demonstrate that it is appropriate to continue a bankruptcy beyond 3 years. It appears that the intention of the amendments is to deem a ‘special ground’ sufficient evidence of the basis for continuing a bankruptcy, without reference to the considerations discussed in Wharton and Nelson (supra)…

20.      The Tribunal accepts the respondent’s submission that for Mr Broadley to succeed in relation to a special ground of objection there must be a finding that at least one of the conditions in s 149N(1) of the Act applies and that the circumstances in s 149N(1A) do not apply.  In respect of s 149N(1A) of the Act, the Tribunal has found that Mr Broadley has established that he had a reasonable excuse for the conduct or failure that constituted the special ground of objection.  Therefore the circumstances in s 149N(1A) do not apply.

21.       In respect of s 149N(1) of the Act, there is nothing in the Act to support Mr Christensen’s submission that the reasonable excuse established by Mr Broadley under s 149N(1A) of the Act for failing to disclose all information relating to his personal and financial affairs establishes that the conditions in s 149N(1)(c) of the Act apply.  Among the reasons given by the respondent for objecting to discharge was that Mr Broadley’s failure to make full disclosure of all information in relation to his personal and financial affairs has contributed to lengthy and expensive delays in the progress of [the trustee’s] investigations.  The Tribunal is satisfied that there is no reason why the trustee should have been prevented from carrying out further investigation of Mr Broadley’s personal and financial affairs.  Consequently the Tribunal finds that Mr Broadley has not established that the reasons given by the trustee do not justify the making of the objection (s 149N(1)(c) of the Act). 

22.      Mr Broadley is unable to satisfy the Tribunal that any of the other conditions in s 149N(1) of the Act apply, and there is no persuasive evidence to support the contention that in the reasons for objection the trustee was seeking to punish Mr Broadley.  Therefore under s 149N(3) of the Act the Tribunal must confirm the decision. Under s 43(1A)(1)(a) of the Administrative Appeals Tribunal Act 1975 (dealing with the form of the Tribunal’s decision on review) the Tribunal is required to affirm the decision.

DECISION                    

23.      The Tribunal affirms the decision under review.

I certify that the preceding twenty-three [23] paragraphs are a true copy of the reasons for the decision of G.D. Friedman, Senior Member.

Signed:         ........(Sgd. R Riberi)......................................
  Associate

Date of hearing:  15 September 2006
Date of decision:  26 October 2006
Advocate for applicant:             Mr L. Christensen
Solicitor for applicant:                Christensen Vaughan  
Advocate for respondent:         Ms L. McPherson
Solicitor for respondent:            Australian Government Solicitor