Carney, B.P. v Deputy Commissioner of Taxation

[1994] FCA 511

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JUDGMENT No. ..... , .""ma

1

OF TEE S	-	)	no. NP 384 of 1994
1

~etreen r

Debtor

EumLLI sxmEx 26 1994

The creditor has presented a petition seeking the sequestration of the estate of the debtor. The ground for sequestration given by the petition is that the debtor within 6 months prior to the presentation of the petition signed an authority under section 188 of the Bankruptcy Act. The authority was in fact signed on 31 May 1993 and the petition was dated 24 November and appears to have been presented on 26 November, meaning that the petition was presented 5 days before the 6 month period expired. The creditor has presented evidence in support of the petition as required by the Act and no objection or contradictory evidence has been presented. As a consequence, in the ordinary course, section 52 would provide for sequestration of the estate.

J

However, the debtor has filed a notice of opposition in which he

claims in substance four different forms of relief:

1.	That the Court should not make a sequestration order in exercise of the discretion provided by section 52
2.	That the Court ehould permit the debtor to file a debtor's petition
3.	That the debtor should in the alternative be allowed to call a further meeting of hie creditors to coneider a Part

X arrangement

4 .    That the proceedings should be adjourned to enable the last two matters to be investigated

If a sequestration order is made, the debtor seeks the appointment of Peter David Rodgers ae trustee of hie estate.

The grounde upon which the debtor seeks to have the discretion exercised in his favour has been the subject of quite a volume of evidence. The evidence divides itself into two quite separate categories. The first ie that he is unwell, that he suffers from

depressants and that theee are the consequence of a lifetime of	a significant psychiatric disability requiring treatment by anti-
etresaful and unpleasant events going right back to childhood. The medical evidence led in support of this part of the defence to the petition was all objected to ae irrelevant. It coneisted of an affidavit by a consultant peychiatrist, Dr Malcolm Dent,
tw reports of a psychiatriet, Dr Carol Gibeon, who has been

treating Dr Carney since 1991, and a report of a Dr Joan Lennane,
who was seeing him in 1993 about a problem with alcohol.

I am satisfied that this evidence is relevant to the matter under discussion and admit the evidence. Because the evidence was not cross-examined or opposed, it may be taken to establish that the debtor has been havingmental, emotional and psychiatric problems for many years. The reports establish that from time to time his depression has been of a very deep and significant kind. Indeed there is more than a suggestion in the material that if stressful circumstances continue he may be in some physical danger from his

own acts. For some of the time he has been a large consumer of

alcohol.

It is clear that his significant financial problems as revealed by the proceedings, both in terms of a very large debt for unpaid taxation and for debts owing to a significant number of other creditors, have played at least a role in his condition and may in fact have been from time to time and be at this time one of the major factors in his condition. As against that I should	observe that on 8 July 1993 Dr Gibson said that he had not	apparently had any alcohol since the beginning of 1993, that he
was stabilised on the combination of anti-depressants then being prescribed, and that his health

ha^ c l e a r l y improved i n recent months; he appears t o

be making concerted e f f o r t s to get h i s f inancial

a f f a i r s i n order .

This was a report on a consultation held on 16 June 1993. There was a later report on 6 December 1993, but it does not seem to have arisen from any later or additional consultation. In any event the findings, symptoms and prognoses were the same in that report as in the earlier one. I do not underestimate the conclusions which the doctors have reached and accept that they are explained through the history of Dr Carney's life, including

some of what is described by Dr Gibson as "excessive unplanned

spending, impulsive investments and chaos in his close personal
relationshipsn.

The second basis upon which the discretion is sought to be exercised is the behaviour of the Taxation Office in relation to him. The evidence in this regard is set out in a letter written by Dr Carney to the Ombudsman on 9 September 1993 which he has sworn in the witness box is the truth. It was not cross-examined upon. It is not possible for me to summarise that letter. It sets out hie efforts to achieve a successful Part X arrangement which was, as the evidence of meeting8 held in that connection

He asked the Ombudsman to reconrmend that the Taxation Office reveals, frustrated by the opposition of the Taxation Office.	accept the proposed arrangement. In his reply to Dr Carney's
complaint, the principal investigation officer of the Ombudsman's off ice wrote in a letter received on 28 September 1993 but, as commonly occurs in public offices these days, not dated itself,

Aspect8 of the deecription of your complaint did cau8e

saw, concern for thi8 office a8 they reinforced our

prfor conclusions that the Am's use of bankruptcy, to recover-tax debts, .requires a reassessment to produce a clear statement of policy and procedural guidance.

We were particularly concerned about your allegations

that the AIY) Sydney Office was refusing to discuss the details of your current financial circumstances and had rejected your Part X arrangament because it did so an a matter of course in all cases. These specific issues, as well as many other aspects of ATO decisions to bankrupt, have recently provided the basis of a submfnnion, by this office, to the ATO.

Nonetheless the officer concluded:

However, despite, in my opinion the possibility of

some nhortcominqs reqardinu the Am's consideration of -

your circumsta>ces, I gannot conclude that the decision to reject your Part X arrangement, and to seek the alternative of bankruptcy, was unreasonable.

AB a result, I will not recommend that the AIY) should

accept your Part X offer.

With some considerable degree of attention to detail, the officer then explains why he would not make the recommendation sought. In the course of his treatise, he pointed out that the AT0 had previously entered into agreements with Dr Carney for the payment of his outstanding tax by instalments, butthe doctor continually defaulted in his payments and in agreed arrangements. He

concluded: 

In light of your past payment history, I find it difficult to conclude that the AIY) should not entertain some doubts as to your ability to c q l y with the repayment schedule detailed in your Part X arrangement. The preference for the greater security and accountability, associated with bankruptcy, may reasonably assunre higher priority as a consideration in these circumstances.

It is my opinion that the behaviour and conduct of the Taxation Office in any such case would create a problem for the Court if it were to form a true basis for the exercise of a discretion not to make a ~equestration order. It is true that the Act provides the broadest possible discretion but if it were possible in any case to enter into, as a matter of regular course, the motives of creditors in rejecting Part X arrangements as a ground for not making a sequestration order, the Court would be opening a field of investigation from which, so far as I can see, lawyers and not the public interest would be the substantial beneficiaries.

Obviously in a particular case, the behaviour of a creditor might be a relevant fact in relation to the exercise of a discretion, but I cannot imagine that it could be in a case where the basis is not so much the behaviour of the creditor in relation to the debt, but the behaviour of the creditor in relation to a proposed Part X arrangement. In this particular case for example, it would have involved the Court in the same type of inquiry as was undertaken by the Ombudsman and there is to my knowledge no reported case and no suggestion in any of the texts that this	would be a proper matter for the Court to engage in, when	considering the exercise of the discretion under section 52(1).
So far as the medical evidence is concerned, it must be said that bankruptcy is undoubtedly stressful to everyone involved in it, not least the Court. But if the extent of the stress and the effect of the stress on any individual debtor were to be a regular feature of bankruptcy proceedings for the purpose of having exercised a statutory discretion not to make a sequestration order on an otherwise adequate petition, a completely new area of the law would be opened up which has not previouely cornmended itself to any bankruptcy court so far as I
am aware anywhere in the world, certainly not in Australia.
Indeed, there is evidence in this case as might be expected that if Dr Carney were relieved of the responsibility of having to juggle his apparently quite substantial income amongst various creditors who are pressing him for the payment of their debts, and have the matter handed to a trustee, he would be relieved of a cause for etress which he has personally borne now for quite a number of years. I accept that evidence. In my view bankruptcy would represent merely a momentary sense of lose of prestige for Dr Carney but would otherwise be a considerable administrative assistance to him over the longer haul of dealing with thin large number of unpaid debts many of which go back several years. In the circumstances I do not think that a case has been made out for the exercise of the discretion not to make the eequemtration order as provided by the statute. There can be no point at all in the Court granting the debtor's application to be allowed to file a debtor's petition. He was
perfectly entitled to file a debtor's petition at any time over many years. He has owed the debt to the Tax Office and many of his other creditors for several years, one or two even since 1986. At any particular time when he felt that he was insolvent, and that seems to have been the factual position for several years, he could have filed a debtor's petition. He could have filed one after the abortive end of the creditors' meetings under Part X. He could even have filed one today. But he has not done so, and I can see very little if any benefit anyway from the point of view of prestige or mental state as to whether somebody is made bankrupt on his own or someone else's petition. Dr Carney's counmel only argued this suggestion in some type of undefined psychological way, but if it has such an element, I think it is even more momentary than the whole concept of bankruptcy itself.
The application to be allowed to call a further meeting of his creditors to consider a Part X arrangement is very doubtfully available to the Court by way of order, because amongst other things there is an existing controlling trustee whose authority has not been revoked. The existing meeting of creditors, although it has come together three times, still has outstanding business before it. Doubtful as it is that the Court is able to order any meeting, it is unlikely that in the exercise of its discretion it would order a meeting when there is an unfinished
meeting. Moreover, there is no reason to believe that the creditors would do anything different if they met again than they
have done on previous occasions. There is ample authority that creditors should not be overborne by several meetings being called so that they are worn down or that the voting patterns be distorted by creditors not turning up because of exhaustion arising from the futility of previous efforts to reach agreement. For the same reasons there is no basis for adjourning the proceedings.
The final matter raised by the notice of opposition is the debtor's request for the appointment of Mr Rodgers as his trustee. The background to this is that Mr Rodgers was and is the controlling trustee appointed for the purpose of calling a meeting of creditors to consider the Part X arrangement. The evidence before me establishes that Mr Rodgers has done a considerable amount of work in investigating Dr Carney's affairs so as to present them to creditors. He is an experienced and widely respected trustee and would be eminently suitable to be the trustee of the estate.
However, two problems have been raised. The petitioner submitted that in his reports for the purposes of the creditors meetings Mr Rodgera has expressed an opinion about certain aspects of Dr Carneyes position such that it would be proper in the circumrrtances to have an entirely independent person. I do not find that argument persuasive. Mr Rodgera was acting in a different capacity as controlling trustee than he would act as a trustee in bankruptcy and the Court's experience of him does
not suggest that he would for a moment not recognise the difference of his roles and carry out the role of trustee in bankruptcy adequately and honourably.
The second matter raised is that since some amendments to the Act in recent years, the Court no longer has the power to appoint a

- l0 -

registered trustee in bankruptcy at large. However, section
156A(1) provides that:

A registered trustee may by instrurnene signed by him and filed with the Registrar, consent to act -

(a) as the trustee of the estate of the debtor specified in the instrument in the event that the debtor becomes a bankrupt;

Subsection (3) provides:

mere at the time when a debtor becomes a bankrupt, a
registered trustee has, under subsection (l),
consented to act as the trustee of the estate of the
debtor and the consent has not been revoked, the
registered trustee becomes, at that time, by force of
thi8 subsection, the trustee of the estate of the

bankrupt.

Mr Rodgers has signed a consent to act as trustee in the event

of Dr Carney becoming a bankrupt. That consent, admitted in the these proceedings as exhibit Al, was dated 18 February 1994. I deem the tendering of that document as an exhibit as the filing

of a consent by Mr Rodgers to act by an instrument signed by him	in accordance with section 156A(1) and direct the Registrar to
accept that consent to act as having been duly filed in accordance with that subsection.
I am matisfied that the debtor conrmitted the act of bankruptcy alleged in the petition. I am satisfied with the proof of the other matters of which section 52(1) of the Act requires proof. I make a sequestratio~i order against the estate of the debtor and order that costs including reserved costs be taxed and paid according to the Act. I declare that by reason of the filing of the conment by Mr Rodgers he is the trustee of the estate of the bankrupt. I direct that a draft of this order be delivered to the registrar within 7 days in accordance with rule 1 2 4 ( 2 ) .

I certify that this and the

preceding pages are a true copy Of the

Reasons for

Jusbce E~nfeld