Deputy Commissioner of Taxation v Apostolovski - [2009] FMCA 641

FEDERAL MAGISTRATES COURT OF AUSTRALIA

DEPUTY COMMISSIONER OF TAXATION v APOSTOLOVSKI

[2009] FMCA 641

BANKRUPTCY – Creditor’s petition – amendment – where creditor sought to rely on debt other than the debt upon which the bankruptcy notice was founded.

A New Tax System (Goods and Services Tax Act) 1999 (Cth)
Bankruptcy Act 196 (Cth)
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)

Australia and New Zealand Banking Group Ltd v Coutts (2003) 201 ALR 728
BMW Australia Finance Ltd v Richmond [2008] FMCA 1431
Dean v QUF Industries Ltd (1981) 51 FLR 317
Emerson and Another v Wreckair Pty Limited (1992) 33 FCR 581
Green v Solomon [2001] FCA 698
Howell v Rose [2002] FCA 1196
James v Deputy Commissioner of Taxation (2008) 220 FLR 181
Klinger v Nicholl [2005] FCAFC 153
McIntosh v Shashoua (1931) 46 CLR 494
McNamara v Langford (1931) 45 CLR 267
O’Mara Constructions Pty Ltd v Avery (2006) 151 FCR 196
Pukim Investments Pty Ltd v Johnson [2000] FCA 615
Re a Debtor (No 28 of 1976); Ex parte the Debtor v Carr [1977] 1 All ER 193
Re Ahearn; Ex parte Palmer (1906) 6 SR (NSW) 576\
Re Buckley and Another; Ex parte James Hardie & Co Pty Ltd (1976) 27 FLR 496
Re Devy; Ex parte BBC Hardware Limited (1996) 67 FCR 355
Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256
Owners Strata Plan No 53267, in the matter of Owners Strata Plan No 53267 v Prestia [2001] FCA 363
Re SVIR; Ex parte Commissioner of Taxation (1998) 83 FCR 314
The State of Queensland and Another v J L Holdings Pty Limited (1997) 189 CLR 146

Applicant:

DEPUTY COMMISSIONER OF TAXATION

Respondent:

PETER APOSTOLOVSKI

File Number:

SYG2638 of 2008

Judgment of:

Barnes FM

Hearing date:

2 June 2009

Date of Last Submission:

2 June 2009

Delivered at:

Sydney

Delivered on:

10 July 2009

REPRESENTATION

Solicitors for the Applicant:

Craddock Murray Neuman

Counsel for the Respondent:

Mr P Kintominas

Solicitors for the Respondent:

Charles K Tsalidis

ORDERS

The applicant have leave to file in Court an Amended Creditor’s Petition in the form of the Draft Amended Creditor’s Petition filed in these proceedings on 14 May 2009.
The Amended Creditor’s Petition be returnable instanter.
Service of the Amended Creditor’s Petition be dispensed with.
The Creditor’s Petition be listed for hearing on a date to be fixed.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
SYDNEY

SYG2638 of 2008

DEPUTY COMMISSIONER OF TAXATION

Applicant

And

PETER APOSTOLOVSKI

Respondent

REASONS FOR JUDGMENT

On 2 June 2009 the applicant, the Deputy Commissioner of Taxation (the DCT), filed an interim application seeking leave to file an amended creditor’s petition in Court and to dispense with service of the amended creditor’s petition.
The DCT presented and filed a creditor’s petition on 13 October 2008 seeking that a sequestration order be made against the estate of the respondent, Peter Apostolovski, in which it was claimed that Mr Apostolovski owed $144,855.52 to the DCT, this being the amount of a judgment obtained in the District Court of New South Wales on 30 May 2007 together with interest on the judgment debt. The creditor’s petition was based on an alleged failure by the respondent to comply with the requirements of a bankruptcy notice based on the judgment debt by 1 July 2008.
The matter has been before the Court on a number of occasions on which adjournments have been granted. During that time Mr Apostolovski has made a number of payments to the DCT.
It is not in dispute that, subject to clearance of cheques, the amounts now tendered to the DCT would be sufficient to satisfy the judgment debt. The solicitor for the applicant stated that these amounts will be applied to the debt. The DCT seeks leave to file an amended creditor’s petition on the basis that even if the payments made by Mr Apostolovski would discharge the debt relied on in the original creditor’s petition and the bankruptcy notice, there are other debts owed to the DCT by Mr Apostolovski. The DCT’s contention is that there was a liquidated sum due and payable as at the time of the act of bankruptcy beyond that specified in the original creditor’s petition and that, notwithstanding payment of the amount of the judgment debt, leave should be granted to amend the petition to enable the petitioning creditor to rely on the other debts that existed at the time of the act of bankruptcy. There is no evidence before the Court as to any other creditors of Mr Apostolovski.
The application for leave to file and rely on an amended creditor’s petition was foreshadowed on the last occasion the matter was before the Court. The creditor seeks to include an additional claimed debt in the sum of $120,583.49 said to be due and payable by the respondent to the DCT as at 1 July 2008 (the date on which it was said that the act of bankruptcy occurred) pursuant to the provisions of A New Tax System(Goods and Services Tax) Act1999 (Cth) (the GST Act) and the Taxation Administration Act 1953 (Cth) (the TA Act). The DCT relies on an affidavit of Helen Margaret Randell sworn on 5 May 2009 and filed on 6 May 2009 in relation to the application for leave. The draft amended creditor’s petition refers to payments of $50,728.09 since the date of judgment, although it is not in dispute that further amounts have since been paid.
The applicant relied on the decision of Conti J in Australia and New Zealand Banking Group Ltd v Coutts (2003) 201 ALR 728 in which a creditor sought leave to amend a creditor’s petition. The application was dismissed because the debt sought to be relied on was a liquidated sum that had accrued after the date of the act of bankruptcy. However the applicant submitted that Coutts provided support for the proposition that an amendment to a creditor’s petition to refer to a different debt should be allowed where the debt existed at the time of the act of bankruptcy relied upon (see Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256). It was submitted that in the present case the debt relied upon in the proposed amended creditor’s petition was a debt that existed as at 1 July 2008, the time of the act of bankruptcy relied on in the petition. It was also submitted that, in contrast to the position in Coutts, this was not a case in which there was any difficulty in calculating the amount of the debt in existence as a liquidated sum at the date of the act of bankruptcy within s.44(1)(b) of the Bankruptcy Act.
The applicant submitted that as the proposed amendment was arguable it should be permitted and that the respondent would have an opportunity to refute the debts claimed on the hearing of the creditor’s petition.
According to the affidavit of Ms Randell, the records of the DCT show that Mr Apostolovski was required to pay income tax instalments, income tax withholding and goods and services tax and to lodge a business activity statement each quarter in a financial year, reporting amounts of such instalments, income tax withholding and goods and services tax due and payable. However at the date of filing of the creditor’s petition, some 26 business activity statements covering periods between December 2000 and March 2007 were due but had not been lodged by the respondent. Such business activity statements were lodged between December 2008 and March 2009. On lodgement, the DCT was notified of additional amounts of goods and services tax and income tax instalments (i.e. pay as you go (PAYG) instalments within the TA Act) which were said to have become due and payable on various specified dates between 2001 and 28 May 2007. In addition, as at 1 July 2008 the respondent was said to be indebted to the Commonwealth in the amount of $7,009.60, being a running balance account deficit debt with respect to a partnership between the respondent and another person. On the basis of this information, Ms Randell’s evidence was that the amount due to the DCT from Mr Apostolovski, including a general interest charge (GIC) up to 1 July 2008 and allowing for payments as at the date of the affidavit, was $214,710.92. It is not disputed that since that time there have been further payments of approximately $95,000.
The applicant submitted that the amounts referred to in Ms Randell’s affidavit were amounts that became due and payable at dates prior to the date of the act of bankruptcy and met the requirements of s.44(1) of the Bankruptcy Act. In particular, it was submitted that the nature of the respondent’s liability had to be distinguished from the system under the Income Tax Assessment Act 1997 (Cth) which depends upon the Commissioner issuing an assessment. Under s.33.3 of Division 33 of Chapter 2 of the GST Act, a taxpayer’s obligation is to pay net amounts of GST, after offsetting entitlements to input tax credits on specific quarterly dates (although an extension may be granted in a particular case). It was the applicant’s submission that in any financial quarter there is a certain date fixed by the GST Act by which a taxpayer must lodge and pay GST amounts within the meaning of s.33.3. That process is said not to be dependent upon the Commissioner making an assessment.
Under s.250-10(2) in Part 4 of Chapter 4 of Schedule 1 to the TA Act, a tax-related liability under s.33.3 of the GST Act is included in the table that is an index of tax-related liabilities under other Acts. This table sets out provisions (such as s.33.3) that specify “when the liability becomes due and payable”. Under s.255-5(1):
An amount of a tax-related liability that is due and payable:
(a) is a debt due to the Commonwealth; and
(b) is payable to the Commissioner.
Under s.255-5(2) the Commissioner or Deputy Commissioner may sue in a court of competent jurisdiction to recover an amount of a tax-related liability that remains unpaid after it has become due and payable (as specified in the provisions in the s.250-10 tables including s.33.3 of the GST Act).
The applicant submitted that the liability to remit amounts of GST to the Commissioner was imposed automatically under the GST Act and did not require the issue of a notice of assessment before a debt became due and payable. Rather, once the date specified in s.33.3 passed, the Commissioner may commence proceedings for recovery of that debt. More particularly, such a debt was said to be a debt due and payable within the meaning of the TA Act and on that basis also within the meaning of s.44 of the Bankruptcy Act.
The same approach was said to apply to liability for income tax instalments under Division 45 of Chapter 2 in Schedule 1 to the TA Act. Under s.45-61 provision is made for specified quarterly payments on particular dates by payees of quarterly instalments (as Mr Apostolovski was said to be). It was submitted that the TA Act rendered certain a date by which such payments had to be made. Under s.250-10 quarterly PAYE instalments under s.45-61 of the TA Act are also said to be tax-related liabilities in relation to which s.45-61 in Schedule 1 specifies when the liability becomes due and payable. Section 255-5 was also said to apply to such income tax instalment liabilities.
Another aspect of the amount said to constitute a debt due by the respondent to the applicant as at 1 July 2008 addressed in submissions was an amount described as a general interest charge calculated in accordance with Part IIA of the TA Act. Part IIA was said to operate to impose a general interest charge automatically on outstanding amounts of the kinds in issue in these proceedings which, again was said to be dependent on a notice of assessment. The particular sections in question were not addressed. Similarly it was contended generally that the RBA deficit in respect of primary tax debts due under the BAS provisions (see s.8AAZA of the TA Act) was due and payable and that liability was not dependent on the issue of a notice of assessment.
The applicant submitted that it was only after the creditor’s petition was presented (on 13 October 2008), that Mr Apostolovski reported the additional amounts that were said to be due and payable as at the date of the act of bankruptcy. It was submitted that this situation could be distinguished from a situation where income tax liability had accrued but had not yet been assessed or where it had been assessed after the date of the act of bankruptcy (cf Re Mendonca).
While the solicitor for the applicant was not aware of any authority in relation to the issue of whether the liability for GST fell due and payable before the date of an act of bankruptcy, it was submitted that there was a clear distinction between cases which required a process of assessment and those which did not based on the legislation in issue. On this basis it was submitted that that the amendment should be allowed so that a debt which was due and payable at the time of the act of bankruptcy could be relied upon by the creditor.
The solicitor for the DCT also submitted that the debts in question each constituted a liquidated sum as required under s.44(1)(b)(i) of the Bankruptcy Act. Reference was made to BMW Australia Finance Ltd v Richmond [2008] FMCA 1431 at [22] in which Lloyd-Jones FM referred to authorities to the effect that a debt must be liquidated not only at the date of presentation of the petition but also at the date of the act of bankruptcy relied upon. A liquidated sum has been held to mean a specific sum of money, the amount of which was ascertained or capable of being ascertained by mere calculation (see Re Ahearn; Ex parte Palmer (1906) 6 SR (NSW) 576). It was submitted that the amount of the debt in issue in this case was capable of being ascertained by a mere calculation or arithmetic process. Indeed it was suggested in relation to GST that it was the taxpayer who did the calculation, as the necessary information was in the control of the taxpayer. The amounts referred to in Ms Randell’s affidavit were said to be amounts which had been notified by the taxpayer to the Commissioner. The interest charge was also said to constitute a liquidated sum in the sense that it could be ascertained or was capable of being ascertained depending upon whether the taxpayer complied with his or her obligations.
In relation to the discretion to grant leave to rely on an amended petition, the applicant submitted generally that an analogy could be drawn with a situation where a creditor sought to be substituted for a petitioning creditor. On that basis it was contended that the amendment should be permitted in the absence of some severe prejudice to the respondent.
Reference was made to what was said by Wilson FM in James v Deputy Commissioner of Taxation (2008) 220 FLR 181 at [57] (albeit in relation to the discretion under s.52(2) of the Bankruptcy Act) to the effect that in Re SVIR; Ex parte Commissioner of Taxation (1998) 83 FCR 314 at 317 Burchett J had made it clear that a court in bankruptcy is required to keep in mind not only the interests of the individual parties before it in the particular case but also the public interest which may be adversely affected by the “propping up” of insolvency. The exercise of the discretion in this case was said to be consistent with the policy under the Bankruptcy Act that a creditor who had a debt that might be substituted for the debt of a petitioning creditor was entitled to have that debt considered by the Court in order to avoid the propping up of insolvency. It was submitted that a creditor who had a debt due at the date of the act of bankruptcy should be permitted to petition on that debt in the public interest.
The applicant also submitted that while the time for filing a fresh creditor’s petition in reliance on the act of bankruptcy had expired, in this case the DCT had only been notified of the business activity statements after the commencement of these proceedings so that the right to claim the full extent of the debt could not be exercised when the creditor’s petition was issued. The solicitor for the applicant did not address the issue of whether it would have been open to the Commissioner to make an assessment in relation to Mr Apostolovski’s GST liability (see for example Part 3-10 of Schedule 1 to the TA Act). It was submitted that because the taxpayer did not lodge the business activity statements at the appropriate time, the Commissioner was deprived of the opportunity to present a fresh creditor’s petition relying on such additional debts. This was said to be relevant when the Court came to consider prejudice to the taxpayer, as the situation had been created by the taxpayer. Reference was also made to the fact that the payments by Mr Apostolovski were recent.
Moreover it was said that there were practical issues that the Court should have regard to, in particular the interests of avoiding a multiplicity of litigation between the parties. It was pointed out that were the amendment not to be allowed, the Commissioner would be required to obtain a fresh judgment and serve a fresh bankruptcy notice, notwithstanding that an act of bankruptcy may be relied on by all creditors generally. It was submitted that the Commissioner ought not to be deprived of the opportunity to rely upon the act of bankruptcy that had been committed if its debt was due and payable as at the date of the act of bankruptcy.
Reference was made generally to the remarks by Conti J in Coutts at [22] to the effect that it was well established that ordinarily so long as an amendment was arguable (as this amendment was said to be) and any prejudice occasioned thereby was recompensed by an appropriate award of costs, a party should be permitted to amend a court process (see The State of Queensland and Another v J L Holdings Pty Limited (1997) 189 CLR 146). It was suggested that while the issue of costs was not currently before the Court, costs should not be awarded in favour of the taxpayer because of his significant delay in lodging the business activity statements.
Counsel for Mr Apostolovski opposed the application for leave to file an amended creditor’s petition. It was submitted that an application for substitution as petitioning creditor was not an appropriate analogy, that Mr Apostolovski had met the judgment debt and the debt specified in the original creditor’s petition and that the fact that there was no other creditor in the wings seeking to be substituted meant that public interest arguments about “propping up” insolvency were not applicable as there was no suggestion that there was anyone else who was going to suffer or any other creditor who was going to be at a disadvantage. It was submitted that in the absence of some express warrant in the Bankruptcy Act permitting the petitioning creditor to, in effect, assume the status of a substituted creditor, the Court should not allow it.
Counsel for the respondent contended generally that the legislation relied on by the applicant did not precisely clarify whether GST payments were in fact payable by due dates whether or not GST returns were lodged or whether it was necessary for the Commissioner to take action to prosecute a taxpayer in order to enforce lodgement of business activity statements, although no reference was made to specific provisions in the applicable legislation. It was pointed out that while the judgment debt had been based on estimates by the DCT as to what it was believed would have been disclosed if the relevant returns had been lodged, no such procedure had been adopted in relation to the different matters now in issue. Counsel for the respondent also submitted that even if the GST debt was payable in the manner contended for by the applicant, it had not been established that this was the case in relation to the GIC.
It was submitted that Mr Apostolovski had endeavoured to make payments to remove the judgment debt and also that it was not clear that he was on notice that the applicant would seek to add further debts to the petition. It was suggested that the petitioning creditor had been advantaged in the sense that it received money to which it was never at law entitled from Mr Apostolovski’s wife who was said to have made moneys available and consented to a joint mortgage of the matrimonial home in order to meet the liability for the judgment debt. There was said to be some unfairness in putting these efforts to nought and submitted that this ought to be taken into account as a matter of discretion in relation to the application for amendment.

Counsel for the respondent also submitted that there was an issue as to whether or not this was a proper amendment as it was not an amendment in the sense of correcting a mistake, but rather an amendment which in effect sought to rely on a debt out of time (in that the amendment was sought more than six months after the date of the act of bankruptcy). It was submitted that use of the amendment power in order to overcome the time limit on presentation of a creditor’s petition was not permissible. No authority was cited in this respect.
It was also submitted that the fact that the application had been foreshadowed before all of the judgment debt had been paid did not suffice to make it appropriate to allow the amendment, that it was inappropriate to allow an amendment once the original debt relied upon had been paid and that even if an amendment was permissible in principle the creditor should not be permitted to get around the fact that it would now be too late to present a fresh creditor’s petition.
Finally, counsel for the respondent submitted that even if the Court allowed an amendment, the creditor’s petition should not be dealt with immediately in the absence of clarification of the extent of Mr Apostolovski’s liability.
Section 44(1) of the Bankruptcy Act is as follows:
(1) A creditor's petition shall not be presented against a debtor unless:
(a) there is owing by the debtor to the petitioning creditor a debt that amounts to $2,000 or 2 or more debts that amount in the aggregate to $2,000, or, where 2 or more creditors join in the petition, there is owing by the debtor to the several petitioning creditors debts that amount in the aggregate to $2,000;
(b) that debt, or each of those debts, as the case may be:
(i) is a liquidated sum due at law or in equity or partly at law and partly in equity; and
(ii) is payable either immediately or at a certain future time; and
(c) the act of bankruptcy on which the petition is founded was committed within 6 months before the presentation of the petition.
The payments by the debtor to the creditor in this case were not made prior to the expiration of the time for compliance with the bankruptcy notice. Hence any act of bankruptcy constituted by the debtor’s non-compliance with the bankruptcy notice would remain on foot. The creditor seeks to proceed with the amended creditor’s petition on the basis of that act of bankruptcy (see McIntosh v Shashoua (1931) 46 CLR 494). There is no requirement that a petitioning creditor who seeks a sequestration order based on an act of bankruptcy of the kind for which s.40(1)(g) of the Bankruptcy Act provides (that is, failure to comply with a bankruptcy notice) must “rely, wholly or at all, upon the debt upon which the bankruptcy notice was founded” (Emerson and Another v Wreckair Pty Limited (1992) 33 FCR 581at 588). I also note that under s.44(1)(a), provided the debt is liquidated and amounts to $2,000 or more, there is no requirement that it be for any particular amount (see Klinger v Nicholl [2005] FCAFC 153 at [15]).
The Court has power under s.33 of the Bankruptcy Act 1966 (Cth) to “at any time allow the amendment of any written process, proceeding or notice under this Act”. In Green v Solomon [2001] FCA 698 Wilcox J stated at [7] that the Court will not permit an amendment unless satisfied that no injustice will thereby be done to other parties. His Honour stated “[t]he question, in dealing with prejudice, is whether [the debtor] is now any worse off than if the correct [material] had been inserted … in the first place.” The amendment under consideration in Green v Solomon was a mistake in the date of the act of bankruptcy in the petition.
In this case there is no suggestion that there was any error in or inadvertent omission from the petition. Rather, the DCT claimed that it was only after the creditor’s petition had been presented and filed that Mr Apostolovski reported additional amounts that were in fact due and payable at a time prior to the date of the act of bankruptcy. It was submitted that these amounts constituted a debt on which the DCT may petition in seeking a sequestration order (or that at the least this was arguable) and hence that the amendment sought to include these amounts should be allowed, notwithstanding that the debt on which the bankruptcy notice was based may have been paid.
In Coutts, Conti J referred not only to s.33 of the Bankruptcy Act as the source of the court’s power to allow an amendment to a creditor’s petition but also to Order 13 Rule 2 of the Federal Court Rules. Under Order 13 Rule 2(1) the Federal Court may give a party leave to amend any “document” in the proceeding in such manner as it thinks fit, subject to Order 13 Rule 2(2) which provides “All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings.”
Under Rule 7.01 of the Federal Magistrates Court Rules this Court may at any stage in the proceeding allow a party to amend a document in the way and on the conditions the Court thinks fit. There is no provision in the FMC Rules equivalent to Order 13 Rule 2(2) of the Federal Court Rules. However the principle in Order 13 Rule 2(2) provides guidance as to the circumstances in which it is appropriate for the Court to exercise its discretion to allow an amendment. In Coutts Conti J drew attention to the purpose of determining “the real questions” in Rule 2(2) and to what was said by Carr J in Pukim Investments Pty Ltd v Johnson [2000] FCA 615 in relation to Order 13 Rule 2.
In Pukim a creditor sought leave to amend a creditor’s petition to substitute a reference to an earlier date of service of a bankruptcy notice and to change the date by which the debtor was said to have failed to comply with the bankruptcy notice. In considering whether leave should be granted to amend the petition Carr J referred to s.33(1)(b) of the Bankruptcy Act and Rules 2(1) and (2) of Order 13 and stated at [33]:
I appreciate that a bankruptcy petition may not, technically, be a pleading. However, Order 13 rule 2 is not confined in its application only to pleadings but refers to "any document in the proceeding". In any event, a bankruptcy petition can be regarded as analogous to an originating application. In my view, the principles and guidelines relating to the amendment of originating applications and pleadings generally are broadly applicable to amendment of a bankruptcy petition. An important factor, of course, is whether the debtor may be prejudiced - see, for example, Re Oskar; Ex parte Commonwealth of Australia (1984) 55 ALR 717 at 721.
Importantly, as was recognised in Coutts at [22], “ordinarily, so long as an amendment is arguable, and any prejudice occasioned thereby is recompensed by an appropriate award of costs, a party should be permitted to amend a Court process (Queensland v JL Holdings Pty Ltd (1997) 189 CLR 146)” (and see Pukim at [34] to the same effect).
It is also important to bear in mind that this is an application for leave to amend a petition. It is not the hearing of the petition and hence not the occasion for determination of whether the discretion under s.52 should be exercised or whether for other sufficient cause a sequestration order ought not to be made. In that respect, the DCT’s arguments about “propping up” insolvency are of limited relevance, as the solvency of the respondent is not in issue at this stage.
Moreover, this is an application to amend a petition, not an application to substitute a petitioner. However the availability of substitution under s.49 of the Bankruptcy Act does demonstrate that in some circumstances a debt other than the debt relied on in the creditor’s petition may form the basis for a sequestration order in reliance on the act of bankruptcy alleged in the petition and notwithstanding that the substituted creditor does not necessarily hold a judgment in respect of the debt (see McNamara v Langford (1931) 45 CLR 267 at 271; Dean v QUF Industries Ltd (1981) 51 FLR 317 at 323; Re Devy; Ex parte BBC Hardware Limited (1996) 67 FCR 355 at 356 and Howell v Rose [2002] FCA 1196 at [28]). As indicated above, the fact that the debt on which the proposed amended petition is based was not the subject of a judgment does not mean that it cannot be relied on as the basis for a creditor’s petition (see Emerson v Wreckair). As the Full Court suggested in O’Mara Constructions Pty Ltd v Avery (2006) 151 FCR 196 at [56] “the issue at the heart of the petition is the debtor’s insolvency and not any individual debt”.
The debtor is entitled to be given proper notice of an application for substitution (Re a Debtor (No 28 of 1976); Ex parte the Debtor v Carr [1977] 1 All ER 193). The same may be said in relation to an amendment application, although what is proper notice will depend on the particular circumstances in issue. In this case the solicitors for the applicant wrote to the respondent’s solicitors on 6 April 2009 confirming that the respondent remained indebted to the DCT for the judgment debt and also for an additional amount of $125,948.19 being the then balance of his running balance account. The letter advised that in the circumstances the DCT was not satisfied that Mr Apostolovski was in a position to pay his full indebtedness and that the solicitors were instructed to proceed with obtaining a sequestration order and to oppose any adjournment application. It was also noted in the orders made on 9 April 2009 that the applicant intended to seek leave to rely on an amended creditor’s petition. I am satisfied that the respondent was given adequate notice of the proposed amendment.
Further, just as ordinarily a substituted petitioning creditor need not prove the matters relating to his or her debt at the time of the substitution application (unless it is necessary to refute material suggesting that there is a defect in relation to the debt to be relied on that would make it impossible for a sequestration order to be obtained), so where an amendment is sought, if it is arguable that the petition as amended would be a proper foundation in law for the making of a sequestration order, matters relating to the debt sought to be relied on can await proof at the hearing of the petition in the absence of material before the Court raising an issue as to whether the debt relied on could meet the requirements of s.44 of the Bankruptcy Act.
In this case the respondent was not prepared to concede the correctness of the applicant’s arguments in relation to whether the debts in question were due and payable at the date of the act of bankruptcy. However no other legislative provisions or authority were cited to raise a suggestion that a process of assessment was required to fix the amount of the tax-related liabilities in issue or for such liabilities to become due and payable, instead of this being a case in which the tax-related liabilities arose on the occurrence of specified events and became due and payable at specified times under relevant statutory provisions, without the need for an assessment.
There may well be other provisions in the taxation legislation relevant to particular aspects of the liabilities relied on by the DCT. However on the material before the Court I am satisfied that based on the applicant’s contentions, consistent with the approach in Coutts and Pukim, the proposed amendment is arguable. There is no material presently before the Court to suggest that the applicant could not obtain a sequestration order because of a defect with the debts sought to be relied on or that the debts were not due and payable at the time of the act of bankruptcy relied on in the creditor’s petition. However that matter can be considered in full and determined on the hearing of the creditor’s petition.
I am not persuaded by the respondent’s submission that leave should be refused because the relevant act of bankruptcy occurred more than six months before the amendment application and a fresh creditor’s petition based on such act of bankruptcy would be out of time (s.44(1)(c)). Provided the act of bankruptcy did not occur six months before the petition was presented, the policy behind s.44(1)(c) would not be circumvented by allowing an amendment at this time while the creditor’s petition remained on foot (see to the same effect in relation to substitution of a petitioning creditor Re Buckley and Another; Ex parte James Hardie & Co Pty Ltd (1976) 27 FLR 496 at 510; Dean v QUF Industries Ltd at 323 – 324 and Owners Strata Plan No 53267, in the matter of Owners Strata Plan No 53267 v Prestia [2001] FCA 363 at [15]). I also note that, as was stated in O’Mara Constructions Pty Ltd v Avery (at [53]) “a creditor may proceed in insolvency for the purpose of recovering his or her debt”.
Delay may be a factor relevant to the exercise of discretion, but I am not persuaded that there has been delay on the part of the DCT such as to warrant refusing leave to amend. It was unnecessary for the DCT to raise the issue of possible amendment to the creditor’s petition before there was any clear indication that the judgment debt was or could be paid out.
In relation to the submission that once the debt was paid an amendment to the creditor’s petition was not possible or appropriate, as a matter of discretion there may well be some force in the suggestion that it would be a factor against the exercise of the discretion if a debtor by some action of a creditor had been led to believe that the creditor would not pursue the petition were the judgment debt to be paid. However in this case there is evidence that, at least from 6 April 2009, the debtor was on notice that the creditor was claiming the full indebtedness in these proceedings.
Insofar as it was submitted that the petitioning creditor had in some way been advantaged by receiving moneys from the respondent’s wife, there is no evidence about the actions or motivation of the respondent’s wife before the Court in relation to the amendment application. There is no evidence before the Court from Mr Apostolovski to support any contention that he was misled by the DCT or that it would be unfair to allow the amendment. Nor is there any evidence to suggest that the extent of notice of the application is a factor against the exercise of the discretion. The concerns raised in this respect (and otherwise) are not such as to establish prejudice to the respondent such that the amendment should not be allowed.
More generally, it is relevant to have regard to the fact that the respondent could, in a sense, be seen as bearing some responsibility for the time at which this additional liability was identified as he had not filed the necessary returns at the time the petition was presented. Had he done so it would have been open to the petitioning creditor to include such debts in the petition in addition to the judgment debt which formed the basis for the bankruptcy notice. I note that the issue of whether the creditor could have issued an assessment was raised but not resolved on the evidence before the Court.
I have considered all of the matters raised by the respondent relevant to the discretion to allow an amendment but on balance I am of the view that the proposed amendment should be allowed.
In all the circumstances I am not persuaded that it is in the interests of justice that the petitioning creditor be denied the opportunity to amend its petition and hence be forced to begin the whole process anew, including obtaining judgment, issue and service of another bankruptcy notice and presentation of another petition. I have borne in mind that such an outcome would not be consistent with the intent of the Rules of the Federal Court (see Pukim at [44]), the superior court which exercises concurrent jurisdiction in bankruptcy under harmonised rules.
Rather, I am satisfied that in all the circumstances it is in the interests of justice that the petitioning creditor be given leave to rely on the indebtedness claimed. If the necessary matters in relation to such debts are established at the hearing and Mr Apostolovski is insolvent (a matter on which there is at present no evidence before the Court) then, subject to the matters in s.52(2) or any good reason to the contrary, it would be in the public interest that his affairs be administered in bankruptcy. Those matters will be determined at the hearing of the petition.
Hence the leave sought should be granted.

I certify that the preceding fifty-one (51) paragraphs are a true copy of the reasons for judgment of Barnes FM

Associate:

Date: 10 July 2009