Deputy Commissioner of Taxation v Barnes
[2008] FMCA 7
•14 January 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v BARNES | [2008] FMCA 7 |
| BANKRUPTCY – Application for sequestration order – whether prima facie case – remaining out of Australia with intent to defeat or delay creditors – necessary intent – intent to be established by inference where no direct evidence – ordinarily resident in Australia – dwelling house in Australia. PRACTICE AND PROCEDURE – Mareva type order – power to make – principles – arguable case – demonstrated risk of asset dissipation – travel overseas – remaining out of country – transfer of money. PRACTICE AND PROCEDURE – Service of creditors petition and other documents out of the jurisdiction. |
| Acts Interpretation Act, 1901 (Cth) s.23(b) Federal Magistrates Act 1999 (Cth) ss.15, 81(2) Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK) Income Tax Assessment Act 1936 (Cth) ss.177(1), 263 |
| Barnes v Commissioner of Taxation [2007] FCAFC 88 Barnes v Commissioner of Taxation [2007] FCA 3 Barton v Deputy Commisioner of Taxation (1974) 130 CLR 370 Coolstar Holdings Pty Ltd v Cleary and Anor [2006] FMCA 1442 Halsbury’s Laws of England, (4th Ed.) Vol. 8(3) |
PEG 253 OF 2007
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | JOHN ERIC BARNES |
| File Number: | PEG 253 of 2007 |
| Judgment of: | Lucev FM |
| Hearing date: | 20 December 2007 |
| Date of Last Submission: | 20 December 2007 |
| Delivered at: | Perth |
| Delivered on: | 14 January 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Vaughan |
| Solicitors for the Applicant: | Australian Government Solicitor |
| Respondent: | No appearance |
PEG 254 of 2007
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | JUDITH ANGELA BARNES |
| File Number: | PEG 254 of 2007 |
| Judgment of: | Lucev FM |
| Hearing date: | 20 December 2007 |
| Date of Last Submission: | 20 December 2007 |
| Delivered at: | Perth |
| Delivered on: | 14 January 2008 |
REPRESENTATION
| Counsel for the Applicant: | Mr J Vaughan |
| Solicitors for the Applicant: | Australian Government Solicitor |
| Respondent: | No appearance |
ORDERS
A. PEG 253 of 2007
Orders as to Service out of Australia
Leave is granted to serve the documents required to be served in accordance with Rule 4.05 of the Federal Magistrates Court (Bankruptcy) Rules 2006, namely:
1.1the creditor's petition in PEG 253 of 2007;
1.2the affidavit of Aris Zafiriou sworn 20 November 2007 verifying the creditor's petition;
1.3the affidavit of Annelies van den Brun sworn 14 November 2007;
1.4the affidavit of Norman Gerald Edwards sworn 15 November 2007;
1.5the affidavit of Robert Henry Masters sworn 15 November 2007;
1.6the affidavit of Carole Melissa Ramdhas sworn 16 November 2007;
1.7the affidavit of Fiona Biltris sworn 20 November 2007;
1.8the affidavit of Aris Zafiriou sworn 20 November 2007;
1.9the supplementary affidavit of Aris Zafiriou sworn 20 December 2007; and
1.10the affidavit of Joseph Cianfrini sworn 20 December 2007,
together with:
1.11these orders and the Freezing Orders made herewith; and
1.12the applicant's interim application dated 10 December 2007 for freezing orders;
(“Documents”) on the respondent outside Australia in the manner contemplated by these orders.
The Documents be served on the respondent by way of substituted service and personal service be dispensed with.
Service of the Documents be effected by:
3.1posting by way of ordinary pre-paid post a copy of the Documents to the respondent at PO Box 7206, Cloisters Square, Perth WA 6850;
3.2posting by way of ordinary pre-paid post a copy of the Documents to the respondent at Rock Head Farm, Glaisdale, Whitby, North Yorkshire, England;
3.3serving a copy of the Documents on Butcher, Paull & Calder at 231 Adelaide Terrace, Perth WA 6000.
Service in accordance with these orders be deemed good and sufficient service of the Documents upon the respondent.
Subject to the relevant postal authorities not returning the Documents as undeliverable, service of the Documents be deemed to have been effected on the respondent 2 weeks after posting and service in accordance with paragraph 3 of these orders.
The costs of the interim application are the applicant's costs in the creditor's petition.
Freezing Orders
Upon the applicant undertaking:
(a)to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of these interim orders or any continuation (with or without variation) thereof; and
(b)to pay the compensation referred to in (a) to the person there referred to:
The time for service of the interim application for freezing orders dated 10 December 2007, the affidavits in support thereof and these orders is abridged and service thereof is to be effected in accordance with paragraph 3 of the Orders as to Service Out of Australia made herewith by no later than 3 working days after the date of these orders.
Subject to the next paragraph, paragraph 4 of these orders have effect up to and including 5pm on 28 March 2008 (“Return Date”). On the Return Date there will be a further hearing in respect of these orders before the Court.
Anyone served with or notified of these orders, including the respondent, may apply to the Court at any time to vary or discharge these orders or so much of them as affects the person served or notified. Any person so applying is to give the applicant 24 hours notice of any such application.
The respondent must not remove from Australia or in any way dispose of or deal with or diminish the value of any of his assets in Australia.
For the purposes of these orders the respondent’s assets include but are not limited to:
5.1any of the money in Commonwealth Bank of Australia Ltd term deposit account 600750049849 held jointly with his wife, Judith Angela Barnes, currently standing in the amount of $81,877.15; and
5.2the Honda Odyssey motor vehicle with registration 1AEB222.
Subject to paragraph 7, the respondent must:
6.1at or before the further hearing on the Return Date, to the best of his ability, inform the applicant in writing of all of his assets worldwide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of his interest in the assets;
6.2within 10 working days after being served with these orders, swear and serve on the applicant an affidavit setting out the above information.
In the event that the respondent wishes to object that compliance with paragraph 6 may tend to incriminate him or make him liable to a civil penalty:
7.1the respondent must, at or before the further hearing on the Return Date notify the applicant in writing that he wishes to take such objection and identify the extent of the objection;
7.2if the respondent gives such notice, he need only comply with paragraph 6 to the extent, if any, that it is possible to do so without disclosure of the material in respect of which the objection is taken; and
7.3if the respondent gives such notice, the Court may give directions as to the filing and service of affidavits setting out such matters as he wishes to place before the Court in support of the objection.
These orders do not prohibit the respondent from:
8.1paying all his ordinary living expenses;
8.2paying his reasonable legal expenses;
8.3dealing with or disposing of any assets in the ordinary and proper course of his business, including paying business expenses bona fide and properly incurred; and
8.4in relation to matters not falling within 8.1, 8.2 or 8.3, dealing with or disposing of any of his assets in discharging obligations bona fide and properly incurred under a contract entered into before these orders were made, provided that before doing so the respondent gives to the applicant, if possible, at least 2 working days written notice of the particulars of the obligation.
The parties may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case, the applicant or the respondent must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of them both, and the Court may order that the exceptions are varied accordingly.
These orders will cease to have effect if the respondent:
10.1pays the sum of $3,861,687.16 into Court; or
10.2pays that sum into a joint bank account in the name of the respondent’s solicitor and the solicitor for the applicant as agreed in writing between them; or
10.3provides security in that sum by method agreed in writing with the applicant to be held subject to the order of the Court.
Any such payment or security referred to in paragraph 10 will not provide the applicant with any priority over the respondent’s creditors in the event of his insolvency.
If these orders cease to have effect pursuant to paragraph 10, the respondent must as soon as practicable file with the Court and serve on the applicant notice of that fact.
These orders do not prevent any bank from exercising any right of set off it has in respect of any facility which it gave the respondent before it was notified of these orders.
No bank need inquire as to the application or proposed application of any money withdrawn by the respondent if the withdrawal appears to be permitted by these orders.
The applicant may give notice of these orders to the Commonwealth Bank of Australia Ltd and any other person it reasonably believes may have possession, custody or control of any assets of the respondent.
The costs of the interim application are reserved.
General
The creditor's petition is adjourned for mention at 10:15am on the Return Date.
The interim application is adjourned to 10:15am on the Return Date.
B. PEG 254 of 2007
Orders as to Service out of Australia
Leave is granted to serve the documents required to be served in accordance with Rule 4.05 of the Federal Magistrates Court (Bankruptcy) Rules 2006, namely:
1.1the creditor's petition in PEG 254 of 2007;
1.2the affidavit of Aris Zafiriou sworn 20 November 2007 verifying the creditor's petition;
1.3the affidavit of Robert Henry Masters sworn 29 September 2007;
1.4the affidavit of Annelies van den Brun sworn 14 November 2007;
1.5the affidavit of Norman Gerald Edwards sworn 15 November 2007;
1.6the affidavit of Carole Melissa Ramdhas sworn 16 November 2007;
1.7the affidavit of Fiona Biltris sworn 20 November 2007;
1.8the affidavit of Aris Zafiriou sworn 30 November 2007;
1.9the supplementary affidavit of Aris Zafiriou sworn 20 December 2007; and
1.10the affidavit of Joseph Cianfrini sworn 20 December 2007,
together with:
1.11these orders and the Freezing Orders made herewith; and
1.12the applicant's interim application dated 10 December 2007 for freezing orders;
(“Documents”) on the respondent outside Australia in the manner contemplated by these orders.
The Documents be served on the respondent by way of substituted service and personal service be dispensed with.
Service of the Documents be effected by:
3.1posting by way of ordinary pre-paid post a copy of the Documents to the respondent at PO Box 7206, Cloisters Square, Perth WA 6850;
3.2posting by way of ordinary pre-paid post a copy of the Documents to the respondent at Rock Head Farm, Glaisdale, Whitby, North Yorkshire, England;
3.3serving a copy of the Documents on Butcher, Paull & Calder at 231 Adelaide Terrace, Perth WA 6000.
Service in accordance with these orders be deemed good and sufficient service of the Documents upon the respondent.
Subject to the relevant postal authorities not returning the Documents as undeliverable, service of the Documents be deemed to have been effected on the respondent 2 weeks after posting and service in accordance with paragraph 3 of these orders.
The costs of the interim application are the applicant's costs in the creditor's petition.
Freezing Orders
Upon the applicant undertaking:
(a)to submit to such order (if any) as the Court may consider to be just for the payment of compensation, to be assessed by the Court or as it may direct, to any person, whether or not a party, adversely affected by the operation of these interim orders or any continuation (with or without variation) thereof; and
(b)to pay the compensation referred to in (a) to the person there referred to:
The time for service of the interim application for freezing orders dated 10 December 2007, the affidavits in support thereof and these orders is abridged and service thereof is to be effected in accordance with paragraph 3 of the Orders as to Service Out of Australia made herewith by no later than 3 working days after the date of these orders.
Subject to the next paragraph, paragraph 4 of these orders have effect up to and including 5pm on 28 March 2008 (“Return Date”). On the Return Date there will be a further hearing in respect of these orders before the Court.
Anyone served with or notified of these orders, including the respondent, may apply to the Court at any time to vary or discharge these orders or so much of them as affects the person served or notified. Any person so applying is to give the applicant 24 hours notice of any such application.
The respondent must not remove from Australia or in any way dispose of or deal with or diminish the value of any of her assets in Australia.
For the purposes of these orders the respondent’s assets include, but are not limited to:
5.1any of the money in Commonwealth Bank of Australia Ltd term deposit account 600750049849 held jointly with her husband, John Eric Barnes, currently standing in the amount of $81,877.15; and
5.2 the Honda Accord motor vehicle with registration 1AEB555.
Subject to paragraph 7, the respondent must:
6.1 at or before the further hearing on the Return Date, to the best of her ability, inform the applicant in writing of all of her assets worldwide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of her interest in the assets;
6.2 within 10 working days after being served with these orders, swear and serve on the applicant an affidavit setting out the above information.
In the event that the respondent wishes to object that compliance with paragraph 6 may tend to incriminate her or make her liable to a civil penalty:
7.1 the respondent must, at or before the further hearing on the Return Date notify the applicant in writing that she wishes to take such objection and identify the extent of the objection;
7.2 if the respondent gives such notice, she need only comply with paragraph 6 to the extent, if any, that it is possible to do so without disclosure of the material in respect of which the objection is taken; and
7.3 if the respondent gives such notice, the Court may give directions as to the filing and service of affidavits setting out such matters as she wishes to place before the Court in support of the objection.
These orders do not prohibit the respondent from:
8.1 paying all her ordinary living expenses;
8.2 paying her reasonable legal expenses;
8.3 dealing with or disposing of any assets in the ordinary and proper course of her business, including paying business expenses bona fide and properly incurred; and
8.4 in relation to matters not falling within 8.1, 8.2 or 8.3, dealing with or disposing of any of her assets in discharging obligations bona fide and properly incurred under a contract entered into before these orders were made, provided that before doing so the respondent gives to the applicant, if possible, at least 2 working days written notice of the particulars of the obligation.
The parties may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case, the applicant or the respondent must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of them both, and the Court may order that the exceptions are varied accordingly.
These orders will cease to have effect if the respondent:
10.1 pays the sum of $3,631,340.09 into Court; or
10.2 pays that sum into a joint bank account in the name of the respondent’s solicitor and the solicitor for the applicant as agreed in writing between them; or
10.3 provides security in that sum by method agreed in writing with the applicant to be held subject to the order of the Court.
Any such payment or security referred to in paragraph 10 will not provide the applicant with any priority over the respondent’s creditors in the event of her insolvency.
If these orders cease to have effect pursuant to paragraph 10, the respondent must as soon as practicable file with the Court and serve on the applicant notice of that fact.
These orders do not prevent any bank from exercising any right of set off it has in respect of any facility which it gave the respondent before it was notified of these orders.
No bank need inquire as to the application or proposed application of any money withdrawn by the respondent if the withdrawal appears to be permitted by these orders.
The applicant may give notice of these orders to the Commonwealth Bank of Australia Ltd and any other person it reasonably believes may have possession, custody or control of any assets of the respondent.
The costs of the interim application are reserved.
General
The creditor's petition is adjourned for mention at 10:15am on the Return Date.
The interim application is adjourned to 10:15am on the Return Date.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT PERTH |
PEG 253 of 2007
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| JOHN ERIC BARNES |
Respondent
PEG 254 of 2007
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| JUDITH ANGELA BARNES |
Respondent
REASONS FOR JUDGMENT
Introduction
The Deputy Commissioner of Taxation[1] has applied to the Court for sequestration orders[2] against the estates of a husband and wife, John Eric Barnes and Judith Angela Barnes,[3] who are alleged to be indebted to the Applicant. The alleged indebitness for unpaid income tax, administrative penalties and general interest charges amounts to more than $3,500,000.00 for each of the Respondents.
[1] “Applicant”.
[2] Under ss.43 and 52 of the Bankruptcy Act, 1966 (Cth) (“Bankruptcy Act”).
[3] Collectively “the Respondents”, individually “Mr Barnes” or “Mrs Barnes”.
The Respondents left Australia on 4 February 2007 and have not returned. The Applicant alleges that the Respondents remain out of Australia with intent to defeat or delay creditors, that being an act of bankruptcy.[4]
[4] Bankruptcy Act, s.40(1)(c)(i).
The Applicant now seeks, ex parte, and on an interim basis:
a)an order permitting service (and for the means of service) on the Respondents out of Australia;
b)mareva type orders freezing the Respondents’ Australian assets; and
c)various ancillary orders.
Issues
The first issue for the Court is whether it is satisfied that there is a prima facie case for sequestration orders to issue against the Respondents before it will consider:
a)issuing a mareva type order freezing assets; and
b)giving leave to serve outside Australia.
Background facts
The background facts fall into four different categories, each of which is dealt with discretely below. The four categories are:
a)migration, residence and citizenship;
b)the purchase and sale of property being a unit in Brigid Road, Subiaco;[5]
c)Australian Taxation Office[6] investigations and actions; and
d)remittance of monies from Australia to the United Kingdom and Europe by the Respondents.
[5] “Subiaco Property”.
[6] “ATO”.
Migration, residence and citizenship issues concerning the Respondent’s and their family
The Respondents migrated to Australia from the United Kingdom with their three sons on 4 July 1996.
The Respondents became Australian citizens on 30 April 1999.
The Respondents lived from time-to-time in both the United Kingdom and Australia, and generally appear to have spent a portion of each year in each place.
The Respondents departed Australia for the United Kingdom on 4 February 2007, indicating on migration exit cards that they were leaving for six months and were Australian residents departing temporarily.
An ATO officer spoke to the Respondents’ solicitor on 28 March 2007 and was advised that the Respondents had returned to the United Kingdom for personal reasons but were expected to return later in October 2007.
On 26 April 2007 an email from the Respondents’ solicitors to an ATO officer indicated that the Respondents had commenced a new business in Europe, transferred $500,000 to facilitate commencement of the business, and that whilst their entire family remained in Australia, they were unlikely to return until late 2007 at the earliest.
The Respondents’ two youngest sons (then aged 26 and 19 years) left Australia on 10 May 2007.
In discussions with ATO officers on 21 June 2007 the Respondents’ real estate agent said that the Respondents did not intend to return to Australia.
On 12 August 2007 the Respondents eldest son (then aged 27 years) left Australia.
In an email from Mrs Barnes to the Respondents’ real estate agents on 13 August 2007 reference was made to the eldest son, his wife and baby child arriving in the United Kingdom.
On 16 August 2007 the Applicants’ solicitors wrote to the Respondents’ solicitors seeking address and contact details for the Respondents. By response dated 20 August 2007 the Respondents’ indicated that they were unable to provide contact details for the Respondents.
In an email from Mrs Barnes to the Respondents’ real estate agent on 30 August 2007 it was noted that the Subiaco Property was unoccupied.
On 15 September 2007 investigators engaged by the ATO observed mail addressed to “Barnes Developments” and “C/- JE Barnes” was received at the Subiaco Property.
On 19 September 2007 investigators engaged by the ATO observed furniture and effects packed for shipping addressed to “JE and JA Barnes” at “Whitby, Yorkshire” being removed from the Subiaco Property.
On 25 September 2007 an Australia Post mail redirection commenced for the Respondents, their three sons and Barnes Developments Pty Ltd. The redirection was to the Respondents’ Perth accountant’s office.
An ASIC search of Barnes Developments Pty Ltd on 27 September 2007 showed that the Respondents, amongst others, were listed as directors and their residential address was the Subiaco Property.
The Respondents remain out of Australia at the time of the hearing.
Purchase and sale of Subiaco Property
The Subiaco Property was purchased by the Respondents on 31 January 2005.
On 17 April 2007 the ATO became aware that the Subiaco Property had been listed for sale.
The Subiaco Property was sold on 29 May 2007 with settlement to be by 30 September 2007 or by mutual agreement.
The sale of the Subiaco Property settled on 3 October 2007
The net proceeds of sale of the Subiaco Property of $1,656,439.34 was remitted to the ATO and applied to the reduction of the Respondents’ tax liabilities in equal half shares.
ATO investigations and actions
On 9 June 2005 ATO officers obtained access without notice at the premises of the Respondents and the Respondents’ solicitors.[7]
[7] Access was obtained pursuant to s.263 of the Income Tax Assessment Act 1936 (Cth) (“Income Tax Assessment Act”). A dispute ensued concerning client-legal professional privilege in respect of certain of those documents: see Barnes v Commissioner of Taxation [2007] FCA 3 and Barnes v Commissioner of Taxation [2007] FCAFC 88 delivered on 9 January 2007 and 22 August 2007, the Respondents being the unsuccessful parties in those cases.
A notice of intention to audit the Respondents’ was issued by the ATO on 24 October 2005. The Respondents were interviewed on 1 May 2006 (Mr Barnes) and 2 May 2006 (Mrs Barnes).
On 9 August 2006 the ATO obtained access[8] with notice, at the premises of the Respondents’ accountants.
[8] Again pursuant to s.263 of the Income Tax Assessment Act.
In a telephone conversation with the Respondents’ solicitors on 28 March 2007 an ATO officer referred to the likelihood of amended assessments issuing for the Respondents.
Between 14 and 20 June 2007 the Applicant issued notices of assessment and amended assessment to the Respondents (separately) and the ATO wrote to the Respondents (again separately) advising of the outcome of the audit and the reasons for the decision to amend assessments.
On 22 June 2007 the Applicant issued notices under the Income Tax Assessment Act to various entities and persons including those involved in the sale of the Subiaco Property.
The Respondents lodged objections to the amended assessments on 17 August 2007. The objections refer to the Respondents having moved $500,000.00 “off shore” to establish another business (presumably the business in Europe referred to above), and that the ATO were advised of this after an ATO enquiry following the transfer of the funds. The objections then indicate that the Respondents “have retained the vast majority of their Australian based investments in Australia amounting to roughly AUD$2,000,000.00 after deducting the … [$500,000.00] and excluding any real property.”
On 20 August 2007 the Respondents’ solicitors advised the Applicant’s solicitors that they were unable to provide the contact details for the Respondents sought by the Applicant’s solicitors in a letter dated 16 August 2007.
On 21 August 2007 further notices under the Income Tax Assessment Act were issued by the Applicant. The ATO responded to complaints concerning those notices on 27 August 2007.
The Respondents’ accountant declined to meet with ATO investigators on 27 August 2007 due to the non-provision of authorisation from the Respondents to do so.
On 29 August 2007 the Applicant’s solicitors wrote to the Respondents’ solicitors requesting particulars of the Respondents’ Australian based assets. This appears to be a response to the assertion in the Respondents’ objections to the amended assessment that the Respondents continued to have Australian based investments of roughly $2,000,000.00. The Respondents’ solicitors did not respond to the Applicant solicitor’s request.
On 27 September 2007 an ASIC search of Barnes Developments Pty Ltd showed the Respondents, amongst others, as directors, and that the Respondents’ residential address was the Subiaco Property.
Remittance of monies to the United Kingdom and off-shore
On 14 July 2006 Mr Barnes commenced to remit money from Australia to the United Kingdom. Amounts of just under $10,000.00 were remitted by Mr Barnes from an Australian bank account in his name to a United Kingdom bank account with Barclays Bank Plc in the name of the Respondents as follows:
a)on 14 July 2006 - $9,860.00;
b)on 1 August 2006 - $9,805.00;
c)on 24 August 2006 - $9,796.00;
d)on 7 September 2006 - $9,821.00;
e)on 19 March 2007 - $9,871.00;
f)on 21 March 2007 - $9,928.00; and
g)on 23 March 2007 - $9,968.00.
On 21 September 2006 $480,299.00 was remitted in the same way as set out above.
Remittance of $500,000.00 occurred in the same way as set out above occurred on 26 March 2007. This remittance is subsequently explained by the Respondents as being for the commencement of a new business in Europe.
Other facts
Other facts are set out as necessary in the judgment below.
Sequestration order – prima facie case
For the Applicant to establish a prima facie case that a sequestration order ought to issue it must satisfy the Court that:
a)Mr Barnes and Mrs Barnes each owe the Applicant a debt of at least $2,000 being a liquidated sum due at law or in equity, or partly so in each, and payable either immediately or at a certain future time;[9]
b)that each of the Respondents committed an act of bankruptcy on which the creditors petition is founded within six months before presentation of the creditor’s petition;[10]
c)that the act of bankruptcy was committed by the Respondents remaining out of Australia with intend to defeat or delay creditors;[11] and
d)at the time the acts of bankruptcy were committed the jurisdictional connection with Australia was met as each of the Respondents was:
i)ordinarily resident in Australia;[12] or
ii)had a dwelling-house in Australia.[13]
[9] Bankruptcy Act, s.44(1)(a) and (b).
[10] Bankruptcy Act, ss.43(1)(a) and 44(1)(c).
[11] Bankruptcy Act, s.40(1)(c)(i) and 43(1)(a).
[12] Bankruptcy Act, s.43(1)(b)(i).
[13] Bankruptcy Act, s.43(1)(b)(ii).
The amended assessments create debts in a liquidated sum due in law and payable upon expiry of the prescribed period for payment, notwithstanding any objection. The debt so created is immediately due and payable to the Commonwealth.[14]
[14] Income Tax Assessment Act, s.177(1); FJ Bloeman Pty Ltd v Commisioner of Taxation (1981) 147 CLR 360 at 376 per Mason and Wilson JJ.
The evidence establishes a prima facie case that the Respondents have present debts immediately payable of $3,861,687.16 in Mr Barnes’s case, and $3,631,340.09 in Mrs Barnes’s case, owed to the Applicant for unpaid income tax, administrative penalties and general interest charges.
The creditors’ petitions for the Respondent having been presented on 13 December 2007, and the obligation to pay the debts arising from the amended assessments occurring on 21 July 2007 (for Mrs Barnes) and 25 July 2007 (for Mr Barnes) it is clear that if the Respondents remain out of Australia with intent to defeat or delay creditors as at those dates (21 and 25 July 2007) the relevant act of bankruptcy was committed by each Respondent within six months before the presentation of the petition.
An act of bankruptcy is committed on each day that a debtor remains out of Australia with intent to defeat or delay creditors.[15]
[15] Re Thai; Ex parte Commissioner of Taxation (1994) 50 FCR 127 at 128-129 per Davies J.
The issue is whether the Respondents have remained out of Australia with the intent to defeat or delay creditors. There is no direct evidence of that intent. If the Court is to be satisfied as to the necessary intent, that intent must be established by inference according to the particular circumstances of each case.[16]
[16] Re Andrews; Ex parte Manning (1966) 8 FLR 56 at 58 per Clyne J (“Re Andrews”).
The relevant intent may be established:
a)even though it is not the debtors sole intent in remaining out of Australia;[17]
b)by attributing to the debtors the necessary consequences of their acts;[18]
c)from awareness of an impending liability;[19]
d)if the intent is only to defeat or to delay one creditor;[20]
e)if the debtors have acted so as to render it impossible for creditors to ascertain the debtor’s whereabouts;[21] and
f)by the debtor having no evidence, or there being an absence of evidence, as to any, honest reason for remaining overseas; from which it may be inferred that there is a fear of returning to Australia to face the consequences of the bankruptcy.[22]
[17] Barton v Deputy Commisioner of Taxation (1974) 130 CLR 370 at 375 per Stephen J.
[18] Edge Technology Pty Ltd v Wang [2000] FCA 1586 at para. 5 per Conti J (“Wang”); Deputy Commissioner of Taxation v Wachjo (2005) 216 ALR 682 at 688 per Conti J; [2005] FCA 561 at para 21 per Conti J (“Wachjo”).
[19] Barton at 374 per Stephen J.
[20] Barton at 374 per Stephen J; Bankruptcy Act, s.6; Acts Interpretation Act, 1901 (Cth) s.23(b).
[21] Wang at para. 7 per Conti J; Wachjo ALR at 687 per Conti J; FCA at para. 20 per Conti J.
[22] Barton at 376 per Stephen J; Re Andrews per Clyne J at 58.
The Court considers that the following circumstances can be relied upon to infer that the Respondents have remained out of Australia with intent to defeat or delay creditors (particularly the Applicant):
a)when the Respondents departed Australia they were aware of the on-going audits, and the possibility of amended assessments issuing;
b)the Respondents were aware that their application to claim legal professional privilege over certain documents to be inspected by the ATO had failed at first instance;
c)the Respondents have remained out of Australia for a greater time than that specified in their migration departure cards, and remain out of Australia;
d)the Respondents have remained out of Australia for a longer period than that represented to the Applicant through the Respondents’ solicitors (who indicated that they would return in October 2007);
e)the Respondents have remained out of Australia knowing that amended assessments have issued;
f)the Respondents are aware that the Applicant is taking steps to endeavour to recover debts due to the Applicant by the Respondents;
g)Mr Barnes has transferred approximately $1,049,000.00 from a bank account in his name to a bank account in joint names in the United Kingdom. The transfers commenced a short time after the Respondents were interviewed by ATO officers. Although the transfers are from money in accounts in the name of Mr Barnes the money is being transferred to an account in the Respondent’s joint names, the Court considers that if there were a freeze on only the accounts of Mr Barnes (on the basis that only he had transferred money out of Australia) that any assets of Mrs Barnes would then be open to be transferred (and potentially defeat any sequestration order) in circumstances where the Court infers that the money transferred to a joint account is being used for the joint benefit of the Respondents;
h)the Respondents have sold the Subiaco Property;
i)the Respondents have refused to provide their contact details to the Applicant;
j)the Respondents have failed to provide details of the alleged $2,000,000.00 of Australian assets that they still hold in Australia; and
k)the relocation of the Respondents’ furniture and effects from the Subiaco Property to the United Kingdom in mid September 2007.
At the very least, the Respondents remaining out of Australia for a period of time in excess of that which they had previously indicated they would return to Australia, delays the Applicant’s endeavours to obtain a sequestration order. Further, the fact that an English court will not enforce a foreign judgment ordering the payment of taxes[23] means that by remaining in and transferring assets to the United Kingdom the Respondents are acting in a manner which may have the effect of defeating the effect of any sequestration order which issues.
[23] Halsbury’s Laws of England, (4th Ed.) Vol. 8(3) at paras. 157 and 152 citing the Foreign Judgments (Reciprocal Enforcement) Act 1933 (UK).
The evidence sufficiently establishes that the Respondents ordinarily resided (prior to the departure from Australia) for a period of time in each year in both Australia and the United Kingdom. A person can be ordinarily resident in more than one country at the same time.[24]
[24] Re Taylor, Ex parte Natwest Australia Bank Limited (1992) 37 FCR 194 at pp. 198-200 per Lockhart J; Mathai v Kwee (2005) 3 ABC(NS) 268 at 285-286 per Graham J; [2005] FCA 932 at paras 121-126 per Graham J (“Mathai”).
Although the Respondents have remained out of Australia for a longer period than that which they indicated they would be, there is sufficient evidence for the Court to conclude that at the time of the act of bankruptcy for each of them they were still ordinarily resident in Australia. That evidence includes:
a)the migration departure card on which the Respondents indicated that they were only departing Australia temporarily;
b)an evinced intention to return to Australia in October 2007 (through the Respondents’ solicitor);
c)that the Respondents’ Subiaco Property remained their Australian residential address for corporate and personal purposes until after the date of the act of bankruptcy; and
d)the Respondents remained the registered proprietors of the Subiaco Property until 3 October 2007.
It may also be inferred that the Respondents remain ordinarily resident in Australia even now, there being some evidence that they intended to return to Australia in very late 2007 or early 2008 (although it is not evident that they have done so), and notwithstanding the sale of the Subiaco Property. That would not be inconsistent with their past practice of residing in both Australia and the United Kingdom for part of each year, and whilst not prima facie evidence of an intention to defeat the Applicant as creditor is nevertheless still evidence of delaying of the Applicant as creditor.
The Court also considers that the Applicant has established a prima facie case that the Respondents, at the time of bankruptcy for each of them, had a dwelling house in Australia, namely the Subiaco Property. In that regard the Court has regard to the matters set out above[25] and also the following:
a)the Respondents’ furniture and effects remained at the Subiaco Property until at least 19 September 2007;
b)until the redirection of mail to the Respondents’ Perth accountants the Respondents continued to receive mail at the Subiaco Property; and
c)the Subiaco Property was the Respondents’ mailing address until late September 2007.
[25] See para. 50 above.
In circumstances where the Respondents’ owned the Subiaco Property, were entitled to return to it at any time if they returned to Australia, nominated it as their Australian address to which they would return on their return from overseas, and in which they had furniture and effects, the Court is prepared to conclude that the Applicant has made out a prima facie case that the Subiaco Property was the Respondents’ dwelling house at the time of the act of bankruptcy for each of the Respondents.[26]
[26] Compare Mathai, ABC at 284-285 per Graham J; FCA at paras.111-119 per Graham J.
In all of the circumstances, the Applicant has established a prima facie case for sequestration orders to issue against the Respondents.
Mareva type order
This Court has power to make a Mareva type order freezing the assets of the Respondents.[27] Further, the Court in exercising jurisdiction in bankruptcy has power to grant, on an ex parte application, a Mareva type order under s.30(1)(b) of the Bankruptcy Act.[28]
[27] Federal Magistrates Act 1999 (Cth), s.15; Coolstar Holdings Pty Ltd v Cleary and Anor [2006] FMCA 1442 at para. 3 per Lucev FM.
[28] Re Clunies-Ross; ex parte Totterdell (1987) 72 ALR 241.
In determining whether a Mareva type order ought to issue the Court has regard to the following principles:
a)that the Applicant show an arguable case that judgment against the other party or parties will be obtained;[29]
b)that the Applicant demonstrate by real evidence, and not mere assertion, that a refusal to make the orders sought involves a real risk that judgment in the Applicant’s favour would remain unsatisfied because of concealment or dissipation of assets;[30] and
c)that the balance of convenience requires the making of an order.[31]
[29] Clout v Anscore Pty Ltd [2000] FCA 727 at para. 6 per Drummond J (“Clout”), Donnelly v Porteous [2001] FCA 345 at para. 9 per Stone J (“Donnelly”); Wily v O’Brien [2006] FMCA 941 at para. 9 per Barnes FM (“Wily”).
[30] Donnelly at para. 9 per Stone J; Frigo v Culhaci (unreported, NSW Court of Appeal, 17 July 1998) at 11 and 16 per Mason P, Sheller JA and Sheppard AJA (“Frigo”); Wily at para. 9 per Barnes FM; Matther v Luttrel Limited and Ors [2003] FMCA 62 at para. 30 per McInnis FM.
[31] Pearce v Waterhouse [1986] VR 603 at 605 per Vincent J; Wily at para. 9 per Barnes FM.
The application of the above principles have regard to the fact that it is the efficacy of the Court’s own processes, and the need to ensure that the Court’s jurisdiction is not usurped, which is the principle concern of a Mareva type order.[32]
[32] Cardile v LED Builders Pty Ltd (1999) 198 CLR 380 at 399-400 per Gaudron, McHugh, Gummow and Callinan JJ; [1999] HCA 18 at paras. 41-42 per Gaudron, McHugh, Gummow and Callinan JJ .
The Court also notes that Mareva type orders are:
a)discretionary;[33]
b)a drastic remedy not to be granted lightly and therefore requiring close scrutiny of the available evidence;[34] and
c)if granted, only granted to the minimum extent necessary.[35]
[33] Patterson v BTR Engineering Australia Limited [1989] NSWLR 319 at 321 per Gleeson CJ; Official Trustee in Bankruptcy v Dunwoody [2004] FMCA 143 at para. 19 per Rimmer FM (“Dunwoody”).
[34] Dunwoody at para. 21 per Rimmer FM; Wily at para. 9 per Barnes FM; Frigo at paras. 10-11 per Mason P, Sheller JA and Sheppard AJA.
[35] Frigo at para. 12 per Mason P, Sheller JA and Sheppard AJA; Clout at para. 6 per Drummond J; Wily at para. 9 per Barnes FM.
In determining this interim ex parte application the Court has had regard to the principles, and mode of application, set out above.
For reasons set out above the Applicant has established a prima facie case for the issuance of a sequestration order.[36]
[36] See paras 43-57 above.
Although it appears that there remains a sum of $81,877.00 and a motor vehicle as assets of the Respondents in Australia, there is evidence to suggest that there may be another $2,000,000.00 in Australian assets if a sequestration order were ultimately to be made. It is to these assets that the Mareva type order is directed.
In circumstances where:
a)approximately $1,049,000.00 has already been transferred by Mr Barnes from Australia to the United Kingdom into an account in the Respondents’ joint names;
b)the Subiaco Property has been sold;
c)the Respondents’ furniture and effects from the Subiaco Property have been sent to the United Kingdom;
d)the Respondents refuse to provide details of the nature of the alleged $2,000,000.00 in Australian assets, and refuse to provide contact details to the Applicant;
e)the Respondents continue to remain out of Australia; and
f)assets transferred to the United Kingdom may be irrecoverable in that jurisdiction because they are tax debts,
the Court considers that there is sufficient evidence of the Respondents having disposed of or removed assets from the jurisdiction to warrant the conclusion that they may continue to dispose of or remove assets from the jurisdiction and that this Court’s processes may thereby be frustrated if they sequestration order were to ultimately issue.
In relation to the balance of convenience the Court notes the undertaking as to damages by the Applicant which, given the nature of the Applicant, affords significant protection to the Respondent in the event that it suffers damage as the consequence of the issuance of any Mareva type order. The Applicant has established a prima facie case for the issuance of a sequestration order. The Mareva type orders will allow for the Respondents to utilise their Australian assets for the purposes of ordinary living expenses, reasonable legal expenses and pre-existing commitments. In these circumstances, the Court has concluded that the balance of convenience lies in favour of the Applicant.
In all of the circumstances the Court considers that the Applicant has made out a case for the issuance of a Mareva type order, substantially in the terms sought by it.
Service
There is no specific bankruptcy provision or rule dealing with service outside the jurisdiction.
There are however provisions which might be utilized: namely, s.309(2) of the Bankruptcy Act and O.8 of the Federal Court Rules (Cth).[37] Order 8 of the FC Rules does not appear to have been applied in any reported case to allow for the service of bankruptcy proceedings outside of the jurisdiction. Order 8 of the FC Rules can however apply because it is an order set out in Part 2 Schedule 3 of the FMC Rules, which apply, with any necessary changes, to bankruptcy proceedings in this Court, where the FMC Rules are insufficient or inappropriate.[38] The FMC Rules, however have effect subject to any provision made by another Act, or by rules or regulations unde another Act, with respect to practice and procedure in particular matters.[39] Section 309(2) of the Bankruptcy Act provides that where a document is to be served on a person “the Court may, in a particular case, order that it be given or served in a manner specified by the Court, whether or not any other manner of giving or serving the notice or other document is prescribed.” It would therefore appear to be a matter of discretion as to whether the Court utilizes the provisions of O.8 of the FC Rules or s.309(2) of the Bankruptcy Act to prescribe the means of service on a person outside of the jurisdiction (assuming that the relevant provisions of each can otherwise be complied with),
[37] “FC Rules”.
[38] FMC Rules, r.1.05(2) and (3)(b).
[39] FM Act, s.81(2).
The Applicant can not meet the requirements of O.8 of the FC Rules because there is no evidence before the Court as to whether the United Kingdom is a convention or non-convention country.[40]
[40] FC Rules, o.8 r.2(3).
Under s.309(2) of the Bankruptcy Act the discretion conferred is unfettered but not to be exercised lightly. The Court must be satisfied that:
a)abnormal difficulty exists in effecting personal service of the creditors petition on the Respondents; and
b)there is a reasonable probability that the Respondents will be informed of the petition as a result of the form of service identified.[41]
[41] Ginnane v Diners Club Limited (1993) 120 ALR 375 at 378 and 381 per Northrop, Sheppard and Einfeld JJ; Equititrust Limited v Bosiljevac [2007] FCA 323 at paras. 7-12 per Collier J; Re Mendoca Ex parte Commissioner of Taxation (1969) 15 FLR 256 at 261 per Gibbs J.
In the circumstances of this case the Court is satisfied that there is abnormal difficulty in serving the Respondents. That difficulty exists by reason of:
a)the Respondents being outside of the jurisdiction;
b)the Respondents refusing to provide the Applicant with contact details; and
c)the Respondents refusal to authorise the Respondents’ accountants to meet with the ATO.
In the above circumstances it seems to the Court that it is unlikely that the Respondents will facilitate service upon them of the documents (there is of course no obligation for them to do so), and as such the Court, in order that its processes not be frustrated, ought to specify a different manner of service. Before it does so the Court must be satisfied that there is a reasonable probability that the Respondents will be informed of the creditors petition as a result of the form of service specified.
The manner of service proposed includes service on solicitors acting for the Respondents, and postal service on the Respondents at a property at which they appear to reside in Yorkshire, England, as well as at a post office box used by them in Perth.
The Court is satisfied that if copies of the creditors petition (and other documents) are served in the manner proposed by the Applicant that they will be drawn to the attention of the Respondents.
Conclusion
The Applicant has established a prima facie case in relation to the issuance of a sequestration order. The Court has concluded that there is a risk of disposition of assets in Australia by the Respondents, and that the balance of convenience favours the issuance of a Mareva type order, as sought by the Applicant. The Court has ordered service outside of Australia under the provisions of s.309(2) of the Bankruptcy Act, the Court being satisfied that abnormal difficulty exists with personal service of the Documents and that the Documents will be drawn to the attention of the Respondents by the means of service specified.
Orders will issue in terms sought by the Applicant, with minor variations.
I certify that the preceding seventy-seven (77) paragraphs are a true copy of the reasons for judgment of Lucev FM
Associate: M Hewitt
Date: 14 January 2008
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