Deputy Commissioner of Taxation v Blaikie
[2006] FCA 1695
•7 DECEMBER 2006
FEDERAL COURT OF AUSTRALIA
Deputy Commissioner of Taxation v Blaikie [2006] FCA 1695
TAXATION – Income Tax Assessment Act 1936 (Cth) – s 222ALA Payment Agreement between company and Deputy Commissioner of Taxation – default in making payment – whether director liable to pay penalty of total amount outstanding – whether director had reasonable grounds to expect company would comply with its obligations under the Agreement – Held: director did not have reasonable grounds to expect the company would comply with the Agreement – penalty in total amount outstanding payable by director
BANKRUPTCY – Bankruptcy Act 1966 (Cth) – personal insolvency agreement under Part X – Deputy Commissioner of Taxation ruled ineligible to vote – whether personal insolvency agreement should be set aside and a sequestration order made – Held: personal insolvency agreement should be set aside
Bankruptcy Act 1966 (Cth) Part X, ss 5, 188, 188A, 189, 196, 204, 222
Bankruptcy Legislation Amendment Act 2004 (Cth)
Income Tax Assessment Act 1936 (Cth) ss 222ALA, 222AQA(2), 222AQD
Taxation Administration Act 1953 (Cth) s 8Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232 cited
Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722 citedDEPUTY COMMISSIONER OF TAXATION v WALTER WILLIAM DENNIS BLAIKIE AND GEOFFREY DAVID MCDONALD AS CONTROLLING TRUSTEE OF PROPERTY OF WALTER WILLIAM DENNIS BLAIKIE
NSD 865 OF 2006
BRANSON J
7 DECEMBER 2006
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 865 OF 2006
BETWEEN:
DEPUTY COMMISSIONER OF TAXATION
ApplicantAND:
WALTER WILLIAM DENNIS BLAIKIE
First RespondentGEOFFREY DAVID MCDONALD AS CONTROLLING TRUSTEE OF PROPERTY OF WALTER WILLIAM DENNIS BLAIKIE
Second Respondent
JUDGE:
BRANSON J
DATE OF ORDER:
7 DECEMBER 2006
WHERE MADE:
SYDNEY
THE COURT ORDERS THAT:
1.The proceeding be stood over to 14 December 2006, or such earlier date as the Court determines, for the purpose of making orders giving effect to these reasons including orders as to costs.
2.The parties provide to the Associate to Branson J by 12 December 2006 an agreed minute of the orders to be made (including orders as to costs) and if an agreement has not by then been reached, the minutes of orders for which they will respectively contend and brief outlines of submissions in support of the orders.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 865 OF 2006
BETWEEN:
DEPUTY COMMISSIONER OF TAXATION
ApplicantAND:
WALTER WILLIAM DENNIS BLAIKIE
First RespondentGEOFFREY DAVID MCDONALD AS CONTROLLING TRUSTEE OF PROPERTY OF WALTER WILLIAM DENNIS BLAIKIE
Second Respondent
JUDGE:
BRANSON J
DATE:
7 DECEMBER 2006
PLACE:
SYDNEY
REASONS FOR JUDGMENT
INTRODUCTION
On 16 August 2002 Walter William Dennis Blaikie was a director of Employment@Advantage Pty Ltd (‘Employment’). On that day he caused Employment to enter into a Payment Agreement with a Deputy Commissioner of Taxation pursuant to s 222ALA of the Income Tax Assessment Act 1936 (Cth) (‘the ITAA’).
Employment contravened the Payment Agreement when it failed to make a payment of $10 927.38 payable on 18 June 2004. The total unpaid amounts under the Payment Agreement thereupon became payable to the Commissioner of Taxation (s 222ALA(5) of the ITAA).
Mr Blaikie remains a director of Employment. He thus became liable on Employment’s contravention of the Payment Agreement to pay to the Commissioner of Taxation, by way of penalty, an amount equal to the balance payable under the Payment Agreement (s 222AQA(2)) unless he is able to prove one of the defences for which s 222AQD of the ITAA provides.
On or about 4 April 2006 Mr Blaikie executed a personal insolvency agreement under Part X of the Bankruptcy Act 1966 (Cth). The applicant seeks an order in this proceeding setting aside that personal insolvency agreement and a sequestration order against Mr Blaikie’s estate.
BACKGROUND FACTS
Mr Blaikie was a director, and had control of, Advantage Personnel Pty Limited (‘Advantage’) at all relevant times. He was also a director, and had control of, the holding company Advantage Enterprises Pty Limited and its three subsidiary companies, one of which was Employment, at all relevant times. The three subsidiary companies (‘the Companies’), together with Advantage, make up what is referred to as the ‘Advantage Group’. The companies in the Advantage Group were in the labour hire business. Advantage employed all the permanent staff who were responsible for the operations of the Companies. It seems that the Companies employed the workers whose labour was hired to customers of Advantage. A management fee was charged by the Companies to Advantage which was equivalent to the cost of actually employing the workers. No inter‑company profit was built into this charge. Advantage was thus the source of income for the Companies.
Advantage and the Companies were grouped for the purpose of GST with effect from 1 July 2002. Advantage was the representative member and thus responsible for lodging a GST return on behalf of the members of the group for any relevant tax period.
Some time before mid 2002 Mr Blaikie became aware that the financial controller for the Advantage Group had not been remitting proper accounts to the Australian Taxation Office (‘ATO’) for outstanding PAYG withholdings and GST. He approached the ATO to work out a resolution to the problem in about May 2002. He prepared, or caused to be prepared, a weekly cashflow forecast for the Advantage Group from 17 May 2002 to 18 June 2004. Presumably by reference to this document, he advanced a repayment proposal for each of the Companies. The proposal was accepted by the ATO and became the basis of three Payment Agreements entered into by the Companies respectively. As mentioned above, Employment contravened its Payment Agreement when it failed to make a payment of $10 927.38 due on 18 June 2004.
On 19 August 2004 the Deputy Commissioner of Taxation instituted proceedings in the Supreme Court of New South Wales in which she sought payment by Mr Blaikie of a penalty in the amount $304 900.95 being the alleged amount outstanding under Employment’s Payment Agreement. On 29 November 2004 Mr Blaikie signed an authority under s 188 of the Bankruptcy Act authorising Mr Geoffrey Reidy to call a meeting of Mr Blaikie’s creditors and to take control of his property. The Deputy Commissioner of Taxation, presumably relying on an instrument of delegation under s 8 of the Taxation Administration Act 1953 (Cth), voted against a personal insolvency agreement proposed by Mr Blaikie (see s 188A). The requisite majority for Mr Blaikie and Mr Reidy to execute the agreement was not obtained (see s 189). The s 188 authority thereafter ceased to be effective (s 189(1A)).
On 12 April 2005 the Deputy Commissioner filed a creditor’s petition in the Federal Magistrates Court seeking a sequestration order against the estate of Mr Blaikie. Mr Blaikie filed a notice of intention to oppose the petition. It appears that the proceeding in the Federal Magistrates Court has been adjourned pending the resolution of this proceeding.
On 9 November 2005 Mr Blaikie filed a defence and cross-claim in the Supreme Court proceedings. The defence alleges that Mr Blaikie is not indebted to the Commissioner of Taxation because he has a defence under s 222AQD of the ITAA to the penalty claim. The cross-claim alleges that the Deputy Commissioner of Taxation breached her duty of care to Mr Blaikie by making misleading and inaccurate representations to him, at or about the time that the Payment Agreements were entered into, upon which Mr Blaikie relied in causing Employment to enter into its Payment Agreement.
On 13 December 2005 Mr Blaikie executed an authority under s 188 of the Bankruptcy Act authorising Mr Geoffrey McDonald to call a meeting of Mr Blaikie’s creditors and take control of his property. The meeting called by Mr McDonald was ultimately adjourned to 4 April 2006. On that day Mr McDonald ruled that the Deputy Commissioner of Taxation was not entitled to vote at the meeting. Mr McDonald has certified that a special resolution was passed at the meeting requiring Mr Blaikie to execute a personal insolvency agreement. It is accepted by the parties that this special resolution would not have passed had Mr McDonald permitted the Deputy Commissioner to vote.
On 5 May 2006 the Deputy Commissioner instituted this proceeding seeking the following orders:
‘1.A declaration that the Applicant is now and was on 4 April 2006 and at all other relevant times a creditor of the First Respondent and was entitled to vote at the meeting of creditors of the First Respondent held on 4 April 2006.
2.An order that the personal insolvency agreement executed by the First Respondent on or about 4 April 2006 be set aside pursuant to ss. 222(1)(d) or (e) and/or 2(e) or (f) of the Bankruptcy Act 1966 (Cth).
3.Such further or other order as the Court thinks fit pursuant to s. 222(8) of the Act.
4.An order that the First Respondent pay the Applicant’s costs of this application.
5.A sequestration order be made against the estate of the First Respondent pursuant to s. 222(10) of the Act.
6.In the alternative to order 4 above, the Applicant’s costs be taxed and paid from the estate of the First Respondent.’
WAS THE DEPUTY COMMISSIONER ENTITLED TO VOTE AT THE CREDITORS’ MEETING?
Mr Blaikie did not seek in this proceeding to support the counterclaim filed by him in the Supreme Court proceedings. The issue of whether the Deputy Commissioner of Taxation was entitled to vote at the meeting of 4 April 2006 is therefore to be determined by reference to s 222AQD of the ITAA. Mr Blaikie will have a defence under s 222AQD to the Deputy Commissioner’s claim to recover from him, by way of penalty, an amount equal to the balance payable under Employment’s Payment Agreement if he can satisfy the requirements of both subsections (3) and (5) of that section. Those subsections provide as follows:
‘(3) It is … a defence if it is proved that:
(a)the person took all reasonable steps to ensure that the company complied with the agreement; or
(b) there were no such steps that the person could have taken.’
…
‘(5)If the person was a director of the company at the time when the agreement was made, he or she is not entitled to rely on a defence under subsection … (3) unless it is also proved that, at that time, the person had reasonable grounds to expect, and did expect, that the company would comply with the agreement.’
For the purpose of s 222AQD(3) ‘reasonable’ means reasonable having regard to when, and for how long, the person was a director and took part in the management of the company, and all other relevant circumstances (s 222AQD(4)).
Mr Blaikie expected that Employment would comply with the Agreement
Mr Blaikie gave affidavit evidence that he believed that each of the Companies in the Advantage Group, including Employment, would be in a good position to meet their repayment commitments under their respective Payment Agreements because:
‘(a)at the time of executing the Section 222ALA Agreements, the Companies, including Employment, held long term labour supply contracts with many large blue chip clients worth $25m per annum …;
(b)strong growth in the Recruitment Industry sector due to businesses increasingly moving toward labour hire as opposed to taking on employees directly, as a way of better managing their workforce;
(c)the Advantage Group had implemented a training system to up-skill its internal employees, leading to anticipated increases in productivity and revenue;
(d)a number of key employees had been recruited with strong industry knowledge and heavy focus on business development, leading to expectations regarding future growth of the businesses of the Advantage Group;
(e)a Financial Controller had been recruited to manage the day to day running of the accounting and payroll departments for the Advantage Group;
(f)the Advantage Group was awaiting and was very confident of receiving positive announcements in respect to a number of large tenders …;
(g)the Advantage Group had a proven record of growth and the financial projections were based on conservative assumptions;
(h)at the time of executing each of the Section 222ALA Agreements, Advantage Group had just secured and held long term labour supply contracts with a number of Councils and Government bodies worth $10m per annum …; and
(i)to be certain that no payments to the ATO under each of the relevant Section 222ALA Agreements were missed and were on time, an automatic bank transfer arrangement was implemented.’
He also deposed to having 16 years’ experience in the field of employment recruitment and a very good idea of the business cycles to which the recruitment industry is subject.
The Companies in fact complied with their obligations under their respective Payment Agreements until Employment defaulted in the payment due to be made by it on 18 June 2004. By that date a total amount of $1 629 364.82 had been paid under the three Payment Agreements.
I accept that, at the time when the Payment Agreement was made with Employment, Mr Blaikie expected that Employment would comply with it.
No reasonable grounds for Mr Blaikie’s expectation (s 222AQD(5))
The test of whether a person ‘had reasonable grounds to expect … that the company would comply with the agreement’ is an objective test. The issue is thus whether, having regard to those existing circumstances of which Mr Blaikie knew or, had he acted reasonably, ought to have known, it was reasonable for him to expect that Employment would comply with its Payment Agreement (Deputy Commissioner of Taxation v Saunig (2002) 55 NSWLR 722 at 729-730). As Williams JA, with whom McMurdo P and Atkinson J agreed, observed in Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232 at [24]:
‘an agreement pursuant to s. 222ALA is not to be entered into lightly, and any director must be conscious of the implications for the company so doing. Almost invariably the company will be in some financial difficulty and any director acting reasonably would appreciate that special steps would need to be taken if the company was to comply with its obligations thereunder.’
The immediate cause for Employment’s default under its Payment Agreement appears to have been the receipt by the Advantage Group of two demands which were apparently not expected by Mr Blaikie.
Advantage received a demand dated 12 March 2004 from the Registry of the Industrial Relations Commission of NSW that it make payment by 30 March 2004 of a fine of $140 000. That fine had been imposed on 31 December 2003 in respect of an industrial accident, which I am satisfied occurred in 2001, which resulted in the death of an employee. Advantage did not defend the prosecution in the Industrial Relations Commission of New South Wales. Mr Blaikie acknowledged that he would have been aware of the proceedings in the Industrial Relations Commission of New South Wales some time before 16 August 2002. Yet the weekly cash flow forecast for the Advantage Group upon which the Payment Agreements were based made no provision for payment of a fine in any significant amount. Mr Blaikie did not suggest that he sought to make special provision in the weekly cash flow forecast for payment of such a fine. In my view, as at 16 August 2002, Mr Blaikie either knew or ought to have known that a fine in a significant amount was likely to be imposed on Advantage during the term of the Payment Agreements.
On 16 March 2004 Employers Mutual Indemnity (Workers Compensation) Ltd filed a statement of liquidated claim against E-Jobs@Advantage Pty Ltd, one of the Companies in the Advantage Group, in the District Court of New South Wales claiming payment of compulsory workers compensation insurance premiums and interest to 31 December 2003 in the amount of $134 921.46. It similarly appears that the weekly cash flow forecast on which the Payment Agreements were based did not make provision for payment of this claim – certainly on a lump sum basis. The evidence does not reveal the circumstances which gave rise to the filing of this statement of liquidated claim. In the absence of evidence to the contrary, I infer that as at 16 August 2002 Mr Blaikie either knew or ought to have known the likely approximate cost to the Advantage Group of its compulsory workers compensation insurance in the calendar year 2003.
Mr Blaikie gave affidavit evidence that in March 2004 he was concerned that the Advantage Group would not have a sufficient cash flow to meet the additional burden of the above two claims and also meet Employment’s obligations under its Payment Agreement.
An additional problem facing the Advantage Group in March 2004 was that it had not resolved an ongoing dispute with Zurich Australian Workers Compensation Limited concerning its past workers compensation insurance premiums. In late 2000 Zurich had commissioned a wage audit of the Advantage Group which commenced in about early December 2000 and was not completed until April 2002. A letter written by Mr Blaikie to Zurich on 4 April 2002 discloses that he was aware that Zurich was then unable to finalise the assessments because the records of the Advantage Group ‘did not enable exact measurement by employee of which particular work site or industry each employee was engaged in from week to week.’
Mr Blaikie gave evidence that as at 4 April 2002 he understood from his own staff, and from staff of the insurance broker to the Advantage Group, that the Advantage Group would receive a refund in June 2002 from Zurich of more than $700 000. It appears that in about August 2002 the Advantage Group did receive funds from Zurich in respect of premiums for 2002 in a total amount of $739 447.73.
However, on 10 July 2002 Advantage had received a notice from Zurich claiming unpaid premiums from periods between 25 March 1996 and 27 June 2001 in a total amount of $780 829.11. A memorandum from the Advantage Group’s insurance broker dated 10 July 2002 confirms advice that the notice was sent in error. However, the memorandum is not consistent with any continuing understanding that the audit would result in a refund from Zurich.
The memorandum states:
‘In regards to the audit that was conducted on the Advantage Personnel Group I would ask if the results of that audit were ever going to be made available to the client, so far over the last 10 weeks I have been informed by Zurich Workers Compensation that there are amounts outstanding, but no clear, concise information has been received from Zurich Workers Compensation despite my many requests.
Declarations of actual wages have also been forwarded to Zurich Workers Compensation on the 7th May 2002 … I would request that these declarations be actioned and indications as to what amounts may be owing to Zurich or the client be forwarded out as soon as possible.
As indicated in this correspondence there are a number of major issues outstanding, and it is very disconcerting for the client at this time as they are not being kept informed as to what state their account is in with Zurich Workers Compensation. I believe it would be in the best interests of all parties if the information pertaining to these policies was released to the client.’
A copy letter from Zurich to Advantage dated 17 July 2002, marked to the attention of Jane Edwards, the Advantage Group’s financial controller, was received in evidence. The letter contains advice that the audit had revealed that additional premiums were owing for periods between 1996 and 2001 in a total amount of $780 829.11 and that a late payment fee of $531 217.63 had been incurred. The letter requested payment of a total of $1 312 046.74 by 17 August 2002.
Mr Blaikie gave evidence that no formal process for recording or reporting on the progress of the audit, or the issues dealt with during the audit, was established. It appears that Mr Blaikie’s understanding of the information being sought from the Advantage Group during the Zurich audit came principally from Ms Edwards. However, Mr Blaikie only met with Ms Edwards to discuss the progress of the audit two or three times and the meetings were in each case in the nature of informal discussion. I accept that Ms Edwards told Mr Blaikie that ‘everything was great’ but he acknowledged during cross-examination that he sought no verification of her advice. Mr Blaikie also frankly acknowledged that he did not know whether the outcome of the audit would result in the Advantage Group facing a large bill; he thought, however, that the Advantage Group might receive a small credit.
Mr Blaikie gave evidence that he first saw the letter from Zurich dated 17 July 2002 on about 25 March 2003 when Zurich provided the Advantage Group’s lawyers with various documents including the Zurich audit report and the letter. Although Mr Blaikie’s affidavit evidence was that this was the first time that the Advantage Group had seen the letter of 17 July 2002, he agreed in cross-examination that he has never asked Ms Edwards whether she saw the letter on or about 17 July 2002. It seems that Ms Edwards resigned her employment with the Advantage Group in June or July 2002 but continued to work for a further month.
Mr Blaikie acknowledged that he does not know whether the Advantage Group’s records might include a copy of the letter. I see no reason to conclude that the letter was not received by Advantage on or about 17 July 2002. I am satisfied that before executing the Payment Agreement on behalf of Employment Mr Blaikie neither searched the Advantage Group’s records to see what, if any, advice it had received concerning the outcome of the Zurich audit nor sought advice on this issue from Zurich.
Employment’s capacity to comply with its repayment commitments under its Payment Agreement was entirely dependent on the financial strength of Advantage. As mentioned above, Advantage was the source of income for each of the Companies. Advantage went into voluntary liquidation in May 2004.
Having regard to the above evidence I am not satisfied that Mr Blaikie has proved that he had reasonable grounds to expect that Employment would comply with its repayment commitments under its Payment Agreement. His evidence reveals, in my view, that his expectation that Employment would comply with its Payment Agreement was based on his subjective confidence in the financial future of the Advantage Group. This confidence, I find, resulted in his placing reliance on the weekly cash flow forecast referred to in [7] above without taking steps reasonably open to him to identify the possibility of non-routine financial demands being made against members of the Advantage Group during the repayment period. In particular, I find that Mr Blaikie did not take reasonable steps to identify the likely outcomes of the Zurich audit and the proceedings in the Industrial Relations Commission of New South Wales.
Reasonable Steps (s 222AQD(3))
My above conclusion means that Mr Blaikie is not entitled to rely on the defence under s 222AQD(3). However, it is appropriate to record that I am satisfied that there were no reasonable steps that Mr Blaikie could have taken in or about June 2004 to ensure that Employment complied with its Payment Agreement.
Conclusion
For the above reasons I conclude that the Deputy Commissioner of Taxation was a creditor of Mr Blaikie on 4 April 2006 and thus entitled to vote at the meeting of his creditors held on that day.
THE PERSONAL INSOLVENCY AGREEMENT SHOULD BE SET ASIDE
The Bankruptcy Legislation Amendment Act 2004 (Cth), which relevantly came into operation on 1 December 2004, made significant changes to Part X of the Bankruptcy Act. These changes followed a review of the operation of Part X conducted by the Insolvency and Trustee Service Australia and the Attorney-General’s Department. The Explanatory Memorandum in respect of the Bankruptcy Legislation Amendment Bill 2004 confirms that an object of the Bill was to enhance the integrity of the Part X process while not affecting the fundamental policy underpinning Part X of providing a simple and flexible process for debtors and creditors to come to an agreement without sequestration.
The Bankruptcy Legislation Amendment Act inserted a new s 222 into the Bankruptcy Act. Section 222 relevantly provides as follows:
‘(1)If a personal insolvency agreement is in force, the Court may, on application by:
(a)the Inspector-General; or
(b)the trustee; or
(c)a creditor;
make an order setting the agreement aside if the Court is satisfied that:
(d)the terms of the agreement are unreasonable or are not calculated to benefit the creditors generally; or
(e)for any other reason, the agreement ought to be set aside.
(2)If a personal insolvency agreement is in force, the Court may, on application by:
(a)the Inspector-General; or
(b)the trustee; or
(c)a creditor; or
(d)the debtor;
make an order setting the agreement aside if the Court is satisfied that:
(e)the agreement was not entered into in accordance with this Part; or
(f)the agreement does not comply with the requirements of this Part.
…
(10)The trustee or a creditor may include in an application under subsection (1), (2) or (5) an application for a sequestration order against the estate of the debtor. If the Court, on the first-mentioned application, makes an order under this section setting the personal insolvency agreement aside, it may, if it thinks fit, immediately make the sequestration order sought.’
It is appropriate that the discretion vested in the Court by s 222 to set aside a personal insolvency agreement be exercised in the light of the legislative purpose reflected in the Bankruptcy Legislation Amendment Act.
I do not consider it necessary to determine whether the terms of the personal insolvency agreement executed by Mr Blaikie ‘are unreasonable or are not calculated to benefit the creditors generally’ within the meaning of s 222(1)(d). That is because I am satisfied, for the reasons set out in [38]-[41] below, that the agreement should be set aside for other reasons (s 222(1)(e)). I am additionally satisfied that Mr McDonald’s decision not to allow the Deputy Commissioner of Taxation to vote at the creditors’ meeting means that the agreement was not entered into in accordance with Part X (s 196 and s 222(2)(e)).
Part X of the Bankruptcy Act is intended to provide a process whereby a debtor and his or her creditors may come to an agreement as to the way in which the debtor’s personal insolvency should be managed. Section 204 requires that the agreement of the creditors be evidenced by a ‘special resolution’; that is, by a resolution passed by a majority in number and at least three-fourths in value of the creditors present personally, by telephone, by attorney or by proxy at the creditors’ meeting and voting on the resolution (s 5).
The Deputy Commissioner of Taxation, on my above findings, was Mr Blaikie’s largest creditor. Indeed, as at the date of the creditors’ meeting, Mr Blaikie’s liability to the Deputy Commissioner was greater than his total liability to all of his other unsecured creditors. Yet Mr Blaikie’s personal insolvency agreement was entered into without the agreement of the Deputy Commissioner. No attempt has been made to substantiate the ground upon which Mr McDonald ruled that the Deputy Commissioner of Taxation was not entitled to vote at the meeting. It is accepted that the special resolution would not have passed had the Deputy Commissioner been permitted to vote at the meeting.
Moreover, Mr Blaikie executed the s 188 authority in favour of Mr McDonald in the knowledge that, were the Commissioner of Taxation found to be one of his unsecured creditors, the Deputy Commissioner of Taxation was unlikely to support his insolvency being managed under Part X. The Deputy Commissioner had voted against the personal insolvency agreement earlier proposed by him (see [8] above) and had subsequently filed a creditor’s petition seeking a sequestration order against his estate (see [9] above).
A decision to allow Mr Blaikie’s personal insolvency agreement to remain on foot notwithstanding the above circumstances would tend to undermine the integrity of the Part X process which is intended to be a process available to a debtor only where the substantial support of his or her creditors can be obtained.
My conclusion that this is a case in which it would be appropriate to exercise the Court’s discretion to set aside the agreement is rendered more comfortable by the trivial nature of the financial benefit which unsecured creditors would obtain under Mr Blaikie’s personal insolvency agreement. Mr McDonald estimated in his report to Mr Blaikie’s creditors that the dividend payable to unsecured creditors (not including the Deputy Commissioner of Taxation) under the agreement would be 0.10 cents in the dollar. If Mr Blaikie’s liability to the Deputy Commissioner under s 222AQA(2) of the ITAA is taken into account, the likely dividend becomes less than half of that amount.
It presently appears that no funds at all will be available to unsecured creditors should Mr Blaikie become bankrupt. This is unfortunate and also surprising. The evidence establishes that Mr Blaikie was for a number of years the sole director of each of the companies that comprise the Advantage Group. During the same years he was the sole shareholder of the ultimate holding company of the Companies. Mr Blaikie was one of only two shareholders of Advantage. Mr Blaikie gave evidence that in August 2002 the Advantage Group held long-term labour supply contracts worth $25 million per annum. Yet, while he urged the Court not to exercise its discretion to set aside his personal insolvency agreement, he offered no explanation for his apparent failure to own any assets of significance. In the circumstances, I accept the submission of the Deputy Commissioner that further investigation of Mr Blaikie’s financial affairs may be appropriate.
APPROPRIATE ORDERS
The parties will be given the opportunity to agree the terms of the orders appropriate to be made having regard to these reasons for judgment.
I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Branson. Associate:
Dated: 7 December 2006
Counsel for the Applicant: Mr P Walsh Solicitor for the Applicant: Church & Grace Solicitors Counsel for the Respondent: Mr M Aldridge SC and Mr R Marshall Solicitor for the Respondent: Pateman Legal Date of Hearing: 19 & 20 October 2006 Date of Judgment: 7 December 2006
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