Deputy Commissioner of Taxation v Caporale
[2013] FMCA 5
•4 February 2013
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v CAPORALE | [2013] FMCA 5 |
| BANKRUPTCY – Opposed creditor’s petition – whether the Court should look behind the judgment debt, whether the debtor is solvent or whether there is any other reason to refrain from making a sequestration order considered. |
| Administrative Appeals Tribunal Act1975 (Cth), ss.5, 42C, 43, 44 Bankruptcy Act 1966 (Cth), s.52 Income Tax Assessment Act 1936 (Cth), s.177 Judiciary Act 1903 (Cth), ss.39B, 78B |
| Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137 Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | ROSA CAPORALE |
| File Number: | SYG 1024 of 2012 |
| Judgment of: | Driver FM |
| Hearing dates: | 7 November and 10 December 2012 |
| Date of Last Submission: | 21 December 2012 |
| Delivered at: | Sydney |
| Delivered on: | 4 February 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr A O'Brien |
| Solicitors for the Applicant: | Australian Taxation Office, Legal Services Branch |
The Respondent appeared in person
ORDERS
The estate of Rosa Caporale is sequestrated.
The petitioning creditor’s costs (including reserved costs, if any) shall be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).
The Court notes that the date of the act of bankruptcy is 13 December 2011.
The Court notes that a Consent to Act as Trustee was signed by Max Donnelly on 23 May 2012.
The Court notes the obligation on the petitioning creditor to enter these orders and to notify the trustee of his appointment and to serve a copy of the orders upon the Official Receiver in Sydney.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1024 of 2012
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| ROSA CAPORALE |
Respondent
REASONS FOR JUDGMENT
Introduction and background
On 10 May 2012 the Deputy Commissioner of Taxation (Deputy Commissioner) filed a creditor’s petition in this Court seeking a sequestration order and consequential orders against Rosa Caporale. There have been earlier bankruptcy proceedings brought by or against the Deputy Commissioner and another creditor involving other members of Ms Caporale’s family[1]. The present petition asserts that Ms Caporale owes the Deputy Commissioner $261,692.30 and committed an act of bankruptcy by not complying with a bankruptcy notice. The bankruptcy notice followed a judgment obtained in the District Court of New South Wales. The bankruptcy notice was personally served on 19 October 2011. Following orders made by Registrar Hedge on 22 November 2011 in litigation over the bankruptcy notice, the act of bankruptcy relied upon was committed on 13 December 2011.
[1] Caporale v The Owners SP58631 [2009] FMCA 941; Caporale & Anor v The Owners Strata Plan 58631 [2010] FMCA 346; Deputy Commissioner Of Taxation v Caporale [2012] FMCA 206
The Deputy Commissioner relies upon the following evidence:
a)creditor’s petition dated 9 May 2012 and filed 10 May 2012;
b)affidavit verifying the creditor’s petition of Claudio Casonato affirmed 9 May 2012 and filed 10 May 2012;
c)affidavit of service of bankruptcy notice of Norman John Chisholm sworn 15 February 2012 and filed 10 May 2012;
d)affidavit of search of Marian Agbinya sworn 10 May 2012 and filed 10 May 2012;
e)consent to act as trustee of Max Donnelly dated 23 May 2012 and filed 23 May 2012;
f)affidavit of service of creditor’s petition of Norman John Chisholm sworn 31 May 2012 and filed 7 November 2012;
g)affidavit of service of Terrence Brightman sworn 12 June 2012 and filed 7 November 2012;
h)affidavit of Peter Spring affirmed 6 November 2012 and filed 7 November 2012;
i)affidavit of final search of Jason Green affirmed 6 November 2012 and filed 7 November 2012.
The creditor’s petition is resisted by Ms Caporale, who relies upon an amended Notice Stating Grounds of Opposition filed on 1 November 2012. The grounds in that amended notice are:
1.The Respondent is filing an application to set aside the [judgment] & [seeking] a stay of the enforcement of the [judgment] on the basis that the Deputy Commissioner of Taxation could not have relied on the “Conclusive Evidence” provision to obtain a judgment if it is found that “there is corrupt or a deliberate failure to comply with the provisions of the income tax law by the Commissioner”
2.Therefore the Respondent is seeking in addition to the above that the Court set aside the judgment as there is a Defect in the Notice of the making of the assessments due to the corrupt or a deliberate failure to comply with the provisions of the income tax law by the Commissioner.
3.The Respondent is filing a Statement of Damages claims against the Deputy Commissioner of Taxation
4.The Respondent is filing an application for a Judiciary Review under Part 39 of the Judiciary Act, which would mean that if found in favour of the applicant the [C]ourt would reverse the judgment as it could not rely on the “Conclusive Evidence” provision of part 177 of the Tax Act
5.That the Respondent is filing an appeal on the AAT decision of the 25th October 2012 on the basis that it erred in law [by] denying the Respondent natural justice and denial of procedural fairness by not taking into consideration crucial new evidence that was provided by the ATO officer as a witness under oath on the 3rd October 2012
6.That the Respondent should have the due time to prepare the appeal of the AAT decision and be given the 28 days to appeal.
7.That the Respondent be granted leave to extend the time to provide further evidence in order to establish that the Respondent is solvent and would have the capacity to pay the debt if after all appeal avenues are duly provided to the Respondent and the result is in favour of the Applicant
8.A stay on all action should be taken or the Creditors Petition be dismissed as any action taken to carry put a sequestration order would cause loss of future economic benefits to the Respondent
9.That any action to bankrupt the respondent will strip away the Respondent’s rights under the [C]onstitution and cannot as a natural person defendant itself.
10.That the applicant to set aside the [judgment] would be under section 36 of the Civil Procedure rules or equivalent under the Federal Magistrates rules and Acts on the grounds that the [judgment] was procured unlawfully under the Tax Administration [A]ct and other relevant legislation
11.The Respondent claims that the Damages claimed in the application against the Deputy Commissioner of Taxation is significantly greater than what the Respondent owes the Applicant and therefore the Respondent would not owe the Applicant any monies
12.It will deny natural justice to the Respondent
13.It will deny procedural fairness to the Respondent
14.The respondent seeks an adjournment on this matter as there are proceeding before the Administrative Appeals Tribunal that have yet to be determined and would seek that the Adjournment be till the decision is made by the AAT
15.An affidavit supporting the grounds of opposition is filed with this notice.
16.The Respondent therefore seeks that the Creditors petition is dismissed or alternatively that it is adjourned until all of the above matters are decided upon by the various jurisdictions
17.That the evidence and other applications that was to be filed and served by the 10th September 2012 is extended till 4 weeks after the hearing of Sappia Investment Pty Ltd has been determined and a decision received from the local court.
18.That the hearing set for the 7th November 2012 to have the creditor petition set aside is vacated.
19.Alternatively that the hearing be adjourned and the matter be listed for review till after the evidence has been filed and served 4 weeks after the hearing of Sappia Investment Pty Ltd.
20.That the [C]ourt extend the time for the creditors petition if required.
21.The Respondent is seeking the above due to crucial evidence that was given by the ATO in a related matter on the 3rd October 2012 indicating that the ATO has deliberately provided false and fraudulent evidence in the hearings in relation to Section 255-100 of the Tax Administration Act, which affects this matter.
22.The respondent also seeks an extension of time given the events of the 3rd October 2012 to be able to continue to prepare and lodge the applications below.
23.The evidence that was provided by the ATO shows that it lied in relation to a 5 day hearing in August 2012 at the AAT.
24.This significantly alters the outcome and [judgment] that was originally made in relation to this matter and the judgment which has allowed the ATO to proceed to this point should be set aside.
25.The Respondent is also seeking and extension of time to [finalise] financials relating to the applicant that are part of the group and are extensive requiring further time to [finalise] which would show that the Respondent would have the capacity to pay if the monies were owed.
26.That the Respondent be granted leave to extend the time to provide further evidence in order to establish that the Respondent is solvent and would have the capacity to pay the debt if after all appeal avenues are duly provided to the Respondent and the result is in the favour of the Applicant.
27. The Respondent is filing an application to set aside the [judgment] & seeing a stay of the enforcement of the [judgment] on the basis that the Deputy Commissioner of Taxation could not have relied on the “Conclusive Evidence” provision to obtain a judgment if it is found that “there is corrupt or a deliberate failure to comply with the provisions of the income tax law by the Commissioner”
28.Therefore the Respondent is seeking in addition to the above that the Court set aside the judgment as there is a Defect in the Notice of the making of the assessments due to the corrupt or a deliberate failure to comply with the provisions of the income tax law by the Commissioner.
29.The Respondent is filing a Statement of Damages Claims against the Deputy Commissioner of Taxation
30.The Respondent is filing an application for a Judiciary Review under Part 39 of the Judiciary Act, which would mean that if found in favour of the applicant the [C]ourt would reverse the judgment as it could not rely on the “Conclusive Evidence” provision of part 177 of the Tax Act
31. The Respondent claims that the Damages claimed in the application against the Deputy Commissioner of Taxation is significantly greater than what the Respondent owes the Applicant and therefore the Respondent would not owe the Applicant any monies
32.It will deny natural justice to the Respondent
33.It will deny procedural fairness to the Respondent
34.The respondent seeks an adjournment on this matter as there are proceeding before the Administrative Appeals Tribunal that have yet to be determined and would seek that the Adjournment be till the decision is made by the AAT
35.An affidavit supporting the grounds of opposition is filed with this notice.
36.The Respondent therefore seeks that the Creditors petition is dismissed or alternatively that it is adjourned until all of the above matters are decided upon by the various jurisdictions.
37.There will be several reports including medical reports, accountants reports, auditors reports, economic reports, issues of solvency, issues of capacity to pay if required, issues of public interest etc that require experts and the outline to be prepared that will provide the details and the time frames required by the experts.
38.To proceed with the order would deny natural justice and procedural fairness and would result in premature action being taken with dire consequences for the respondent and the public as the respondent would be precluded from managing corporations under subsection 206B(3) or (4) of the Corporations Act 2001
39.To proceed would cause severe financial hardship to the Respondent
40.Premature loss of livelihood and career to the respondent, loss of income
41.Loss of investments into the IETC project affecting the local, national and international economy
42.To proceed would go against the advise of the chartered accountant who has filed an affidavit to verify that the respondent does not owe any monies to the Deputy Commission of Taxation in the years in dispute.
43.To proceed would breach the [C]onstitution by denying the Respondent a right to defend the case given the overwhelming evidence that is available to confirm that the Respondent has an arguable case to show that that there is no monies owing to the Deputy Commissioner of Taxation given the above matters that are currently underway.
44.A stay on all action should be taken or the Creditors Petition be dismissed as any action taken to carry put a sequestration order would cause loss of future economic benefits to the Respondent
45.That all above matter be stayed and enforcement of [judgments] be stayed
The grounds in the amended notice are discursive and somewhat difficult to follow but they essentially boil down to three propositions: first, that the Court should look behind the judgment debt because in reality there is no debt, because Ms Caporale has no taxation liability to the Deputy Commissioner; secondly, that the Australian Taxation Office (ATO) acted improperly to obtain judgment on default taxation assessments and thirdly, that Ms Caporale is solvent. Ms Caporale relies upon two affidavits by herself made on 1 November and 5 November 2012. I treated the first affidavit as a submission and the second affidavit as evidence. There are 28 folders of exhibits to that affidavit, those being business records of the business activities of Ms Caporale and other members of her family. I also received two affidavits by Ms Caporale’s accountant, Shannon Michael Cavanagh, both made on 5 November 2012. Mr Cavanagh was cross-examined on those affidavits. There are two folders of exhibits to those affidavits. Mr Cavanagh expresses opinions concerning Ms Caporale’s taxation affairs and her solvency.
I received in addition the following exhibit:
·C1 Affidavit of Shannon Michael Cavanagh, sworn 7 May 2012.
Unfortunately, Ms Caporale sought to introduce further evidence after I had reserved judgment in this matter and even caused a subpoena to be issued to attempt to compel the production of further information from the ATO. A further hearing was required to deal with those efforts. I received a further affidavit from Ms Caporale made on 3 December 2012 but set aside the subpoena and declined leave for any further evidence to be filed. Ms Caporale sought leave to appeal against those orders on 21 December 2012.
In my view, it is plain that, prima facie, the Deputy Commissioner is entitled to the relief he seeks. The procedural requirements for the making of a sequestration and consequential orders have been satisfied. The issues to resolve are those arising from Ms Caporale’s Notice of Grounds of Objection. As stated above, there are three issues:
a)whether the Court should look behind the judgment debt and consider whether the judgment was not based on a real debt;
b)whether Ms Caporale is solvent; and
c)whether the Deputy Commissioner (or the ATO) has acted in some way fraudulently or in bad faith.
The background facts are detailed in the following chronology.
DATE EVENT 22 March 2002 Ms Caporale objects against s.167 of the Income Tax Assessment Act 1936 (Cth) (Income Tax Assessment Act) default assessments of income tax for the years of income ended 30 June 1995, 1996, 1997, 1998, 1999 and 2000 (original objection) 10 March 2003 Ms Caporale signs income tax returns for the years of income ended 30 June 1997 and 1998 7 April 2003 Ms Caporale signs income tax returns for the years of income ended 30 June 1995 and 1996 6 May 2003 Ms Caporale signs income tax returns for the years of income ended 30 June 1999 and 2000 24 December 2003 Deputy Commissioner sends notices of decision on objection to Ms Caporale for the years of income ended 30 June 1995, 1996, 1997, 1998, 1999 and 2000 (the objection decisions) 14 February 2004 Ms Caporale files with the Administrative Appeals Tribunal (the Tribunal) applications (NT 2004/52-57) for review of the objection decisions 3 March 2006 Deputy Commissioner and Ms Caporale execute a Request for a Decision requesting the Tribunal, pursuant to s.42C(1)(b) of the Administrative Appeals Tribunal Act 1975 (AAT Act), to make a decision in accordance with the request in respect of the objection decisions
28 April 2006 Tribunal makes decisions, pursuant to s.42C(2) of the AAT Act, in respect of the objection decisions and sends a copy to the Deputy Commissioner and Ms Caporale 25 June 2010 Deputy Commissioner files a Statement of Claim against Ms Caporale in the District Court of NSW (recovery proceedings) 11 August 2011 Judgment for the Deputy Commissioner against Ms Caporale in the recovery proceedings 16 August 2011 Ms Caporale files with the Tribunal an Application for Review of Decision and attaches the objection decisions 16 September 2011 Ms Caporale files with the Tribunal an Application for Extension of Time for the “Tax Years 1995-2002 inclusive” in respect of the objection decisions 4 October 2011 A bankruptcy notice (BN 7399) was issued by the Official Receiver against Ms Caporale 11 October 2011 By consent the Tribunal dismisses the Application for Extension of Time 14 October 2011 Ms Caporale lodges a notice of objection in respect of the 1995 to 2010 income years (new objection) 19 October 2011 Ms Caporale was personally served with the bankruptcy notice 9 November 2011 Ms Caporale files an application seeking to set aside the bankruptcy notice 1 December 2011 Deputy Commissioner refuses extension of time for new objection 12 December 2011 Deputy Commissioner files an Application for Review of Decision with Tribunal 20 December 2011 Registrar Hedge made orders which included the dismissal of Ms Caporale’s application to set aside the bankruptcy notice 24 April 2012 Ms Caporale filed an application for review of Registrar Hedge’s decision of 20 December 2012 7 May 2012 The application for review was dismissed by me[2] 10 May 2012 Deputy Commissioner filed a creditor’s petition in the Court against Ms Caporale 19 May 2012 The petition was personally served on Ms Caporale 14 June 2012 The petition was adjourned to 2 August 2012 30 July 2012 Ms Caporale filed a Notice of Grounds of Opposition to the petition and an affidavit in support arguing amongst others that a sequestration order would be a denial of natural justice and procedural fairness 2 August 2012 The proceedings were listed for hearing on 7 November 2012 with an evidence timetable 17 September 2012 Ms Caporale filed an Amended Notice of Grounds of Opposition to the petition 8 October 2012 Ms Caporale filed a notice of interim application seeking to vacate the hearing listed for 7 November 2012 and enter into a new evidence timetable 25 October 2012 Tribunal affirms the Deputy Commissioner’s decision to refuse the extension of time requests made by Ms Caporale 31 October 2012 The interim application was dismissed with order for Ms Caporale to file any further amended grounds by 2 November 2012 and all evidence by 5 November 2012 2 November 2012 Ms Caporale files a further amended Notice of Grounds of Opposition to the petition 5 November 2012 Ms Caporale files a further three affidavits and 28 exhibit folders
[2] SYG2556 of 2011
Both parties have made oral and written submissions.
Consideration
Ms Caporale’s problems with the Deputy Commissioner (and those of other members of her family) stem from the failure to lodge taxation returns over a number of years and the issuing of default assessments. Ms Caporale has devoted a great deal of energy to attempt to establish that the default assessments are wrong and should be changed. I granted a number of adjournments on the hearing of the petition to permit Ms Caporale to agitate her concerns in the Tribunal but she was unsuccessful. Ms Caporale required an extension of time to further dispute the default assessments and that was refused. Nevertheless, Ms Caporale contends that a proper examination of all the business records should lead to a conclusion that no income tax was owed for the years in issue. She contends that that fact was known to the ATO and that it did not act in good faith in obtaining judgment against her in the District Court. Importantly, however, on 15 December 2011 the District Court dismissed a motion to have the judgment debt set aside.
Ms Caporale also claims that if a purported real estate (and educational services) development proceeds at Dapto in the Illawarra district in which she and other members of her family claim an interest (or more properly, a contingent interest), an income stream and profits will be derived that will permit her to discharge her liability to the Deputy Commissioner. Finally, in her final submissions filed on 17 December 2012, Ms Caporale purports to challenge the constitutional validity of s.177 of the Income Tax Assessment Act. I have not dealt with that issue as no notices under s.78B of the Judiciary Act 1903 (Cth) (Judiciary Act) have been issued.
I accept the submissions of the Deputy Commissioner on the issues in dispute between the parties.
Court’s Power & Discretion to Make a Sequestration Order
Pursuant to s.52(2) of the Bankruptcy Act, the Court has a discretion not to make a sequestration order if the Court is:
a)not satisfied as to any of the matters set out in s.52(1);
b)is satisfied that the debtor is able to pay the debts as they fall due; or
c)for other sufficient cause.
The use of the word “may” in s.52(2) of the Bankruptcy Act provides the Court with complete discretion whether or not to make a sequestration order against the respondent debtor. This discretion is enlivened in the event the Court is satisfied of either of the matters at s.52(2)(a) or (b) of the Bankruptcy Act, and the respondent debtor bears the onus of proving one or both of those matters to the satisfaction of the Court.
Going behind the judgment debt
The judgment debt underlying this proceeding arises from assessments for personal income tax. On 25 October 2012 the Tribunal refused
Ms Caporale an extension of time to dispute the assessments[3]. It is important to recognise that the judgment debt arose as a consequence of:
a)assessments for the 1995-2000 income years: these assessments were issued as a result of Ms Caporale reaching a settlement with the ATO (after seeking a review in the Tribunal) and the Tribunal making consent orders pursuant to s.42C of the AAT Act;
b)assessments for the 2001 and 2002 income years: these assessments were raised in accordance with income tax returns as lodged by Ms Caporale; and
c)general interest charge (GIC): this amount accrues as a matter of law on unpaid tax.
[3] Rosa Caporale v Commissioner of Taxation [2012] AATA 740
If the Court goes behind the judgment debt to the assessments, the Court is not able to question the correctness of the amounts of the particulars of the assessments that give rise to the debt as the assessments are conclusive evidence of the debt[4]. In relation to the same submission in Trevaskis v DCT[5], the Federal Court stated at page 5039:
The difficulty with that submission is that when one goes behind the District Court judgment the Court is left with the notices of assessment which are conclusive by virtue of section 177(1) of the Income Tax Assessment Act. The position was stated by Gibbs CJ (with whom Murphy, Wilson, Brennan and Deane JJ agreed) in Clyne v DCT 83 ATC 4532 at 4533:
The rule that a court of bankruptcy may, in certain cases, go behind a judgment to determine whether it is founded on a real debt can have no application in the present case. If the Court were to go behind the judgment it would be faced with the notice of assessment which, under sec. 177(1) of the Income Tax Assessment Act, is conclusive and with the provisions of sec. 201 of that Act which permit the recovery of tax as if no appeal were pending. Of course, the Court which gives judgment has a discretion to stay execution in appropriate circumstances but a stay of execution was refused in the present case. The argument that if an assessment to tax is disputed no bankruptcy notice can be founded upon the judgment in respect of the tax until the dispute is resolved by the ultimate court of appeal cannot possibly be accepted.
[4] Section 177 of the Income Tax Assessment Act 1936 (Cth)
[5] 93 ATC 5037
Equally in the current context the Court is not able to go beyond the assessments and must accept that there is in truth and reality a debt.
In taxation matters the Court will sometimes allow the appeal in respect of the tax dispute to proceed by way of granting an adjournment of the bankruptcy application[6]. In this matter this has not been necessary as the Deputy Commissioner had agreed to these proceedings being adjourned for a sufficient time to allow for the Part IVC proceedings in the Tribunal to be resolved. The Tribunal has now effectively resolved the tax dispute by refusing Ms Caporale an extension of time.
[6] see, for example, Ahern v Deputy Commissioner of Taxation (1987) 76 ALR 137
Ms Caporale has indicated an intention to appeal the decision of the Tribunal to the Federal Court. However in order for this Court to grant any further adjournments or dismiss the application, it must be satisfied that any such appeal is based on genuine and substantial grounds and the debtor must be pursuing the appeal bona fide. The onus is on the debtor to demonstrate this[7].
[7] Re Verma (1984) 4 FCR 181; Re La Fontaine [1996] FCA 1852
There is no suggestion that the Tribunal has made any error of law in making its decision and Ms Caporlale’s prospects on appeal are bleak.
Solvency
A person is solvent if, and only if, the person is able to pay all of his or her debts, as and when they fall due. A person who is not solvent is insolvent[8].
[8] Section 5 of the Bankruptcy Act
The general test of an ability to pay debts is set out in Sandell v Porter[9] at 679 (Barwick CJ):
… Insolvency is expressed in section 95 as an inability to pay debts as they fall due out of the debtors own money. But the debtors own moneys are not limited to his case resources immediately available. They extend to moneys which he can procure by realization by sale or by mortgage or pledge of his assets within a relatively short time – relative to the nature and amount of the debts and to the circumstances, including the nature of the business of the debtors. The conclusion of insolvency ought to be clear from a consideration of the debtor’s financial position in its entirety and generally speaking ought not to be drawn simply from evidence of a temporary lack of liquidity. It is the debtor’s inability, utilizing such cash resources as he can command through the use of his assets to meet his debts as may fall due which indicates insolvency. Whether that state of his affairs has arrived is a question for the Court and not one as to which expert evidence may speak to the likelihood of any of the debtor’s assets or capabilities yielding ready case in sufficient time to meet the debts as they fall due.
[9] (1966) 115 CLR 670
The inquiry emphasises that it involves a consideration of the ability to command cash resources through his or her own assets[10]. The Court must also look at the level of the debtor’s recurrent expenses and earnings in addition to whether there are cash resources from assets[11].
[10] Trevaskis at 5040
[11] Ex parte Lakatos v DCT 33 ATR 145 at 148
A respondent debtor bears the onus of proving to the Court that their assets are sufficient to pay their liabilities as and when they become due and payable[12]. It is not sufficient to simply show an excess of assets over liabilities[13]. The respondent debtor must also establish that their assets are available to be realised and that they are capable of ready realisation[14].
[12] see Esanda Finance Corp Limited v Velissaris [1999] FCA 1359
[13] Full Court in Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 at 48
[14] see Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400 per Hely J at [17]
Even if the debtor is able to demonstrate he or she is solvent, this does not entitle the debtor to dismissal of the petition; it simply allows the Court a discretion whether it “may” dismiss the petition[15].
[15] Sarina v Council of the Shire of Wollondilly (1980) 48 FLR 372 at 376-7
The Deputy Commissioner contends and I accept that Ms Caporale has failed to provide evidence to establish her solvency. The affidavit of Mr Cavanagh sworn on 5 November 2012:
a)refers to cash flows of a highly speculative nature that may be available to Ms Caporale in the future but not presently;
b)discloses no assets of Ms Caporale, only liabilities (and without giving any details of the bank loans and other creditors of Ms Caporale, except to say that those debts are not currently due and payable);
c)makes a statement to the effect that Ms Caporale is solvent (at [55]) based on an incorrect assumption that the liability to the Deputy Commissioner is not currently due and payable; and
d)seems to have been prepared without taking into account (and there is uncertainty as to whether Mr Cavanagh was advised of) the judgment debt of $2,372,326.07 obtained by the National Australia Bank against Ms Caporale on 31 August 2012, or the additional amended assessments issued to Ms Caporale for an amount of approximately $1.3 million for the 2004 to 2008 income years[16]; and the affidavit of Mr Peter Spring sworn on 6 November 2012.
[16] see National Australia Bank v Caporale [2012] NSWSC 1014
The Deputy Commissioner submits and I accept that Ms Caporale has committed an act of bankruptcy, has failed to establish that her assets are sufficient to pay her debts as and when they become due and payable and appears to be clearly insolvent.
Other sufficient cause
Ms Caporale bears the onus of establishing the existence of an “other sufficient cause”. As stated above I am satisfied that the prerequisites for the making of a sequestration order as set out in ss.52, 43 and 44 of the Bankruptcy Act have been satisfied, and as such the “other sufficient cause” must be one of significant weight to displace the public interest in avoiding insolvent trading[17].
[17] see Klinger v Nicholl [2005] FCAFC 153, BC200505644 Emmett J (with whom Moore and Tamberlin JJ agreed)
“The event”
The basis of the application partly relies on an “event” that arose on 3 October 2012 that indicated the “ATO has deliberately provided false and fraudulent evidence in the hearings in relation to s.255-100 of the Taxation Administration Act, which affects this matter”. The suggestion is that the Deputy Commissioner has in some way acted fraudulently or not bona fide such that these proceedings are in some way “tainted”. The onus of proving such abuse of process is a heavy one[18].
[18] Williams v Spautz (1992) 174 CLR 509 at 526-7
Ms Caporale gives no details of:
a)the event;
b)the basis for the event leading to false and fraudulent evidence being purportedly adduced by the ATO; or
c)how the purported event affects this matter.
The alleged “event” involved a company called Sappia Investments Pty Ltd (a Caporale company) (“Sappia”) and a Local Court prosecution for non-compliance with a security bond demand notice. Ms Caporale alleges that a concession was made at the hearing by the ATO that Sappia was involved in an “enterprise” in respect of a purported development at Dapto.
The Deputy Commissioner denies any such concession was made. Further, the Local Court proceedings concerning Sappia is not in my view relevant to, and has no implications for, the current proceedings.
The alleged “event” and concession in respect of Sappia (even if made) concerns an issue in proceedings concluded last year in the Tribunal involving GST input tax credits being claimed by various Caporale companies, other than Sappia. An issue in those proceedings was whether those companies were carrying on an “enterprise” in respect of the purported development at Dapto so as to be entitled to claim the GST input tax credits.
The Tribunal has reserved its decision in those proceedings and has refused a request made by Ms Caporlae (by email) to re-open the hearing to allow her to adduce evidence of the alleged concession made by the ATO in the Local Court. Equally the Tribunal proceedings are not relevant to, and have no implications for, the current proceedings.
“The debt”
In James v Deputy Commissioner of Taxation[19], Wilson FM held that the Court retains a discretion to admit evidence of substantial dispute as to the underlying taxation debt at the final stage of the inquiry in determining whether there is “other sufficient cause” as to why a sequestration order should not be made. However, James dealt with a situation where the Deputy Commissioner relied upon the conclusiveness of the assessments and there had been no Part IVC proceedings.
[19] [2008] FMCA 1189
James does not deal with the situation where the taxpayer has appealed the assessment to the Tribunal or Federal Court. In respect of the current assessments it is true that the Tribunal refused to extend the time for the objection and, accordingly, did not have a full hearing on the merits as to the tax debt. However, the matters taken into account by the Tribunal in refusing to extend the time are equally relevant to this Court in exercising its discretion as to whether, for some other sufficient cause, a sequestration order should not be made. Of course, a significant matter in any application to extend time is the merits of the dispute[20].
[20] see Brown v FCT 99 ATC 4516 at 4527
In relation to the assessments for the income years 1995 to 2000, the Tribunal found that:
a)there was no particularity in the grounds of the original grounds of objection disputing the assessments;
b)the Tribunal had already reached a decision based on consent orders agreed upon and entered into by Ms Caporale – even if the assessments were not conclusive, Ms Caporale would still be subject to res judicata or estoppel in seeking to have any judgment set aside by a court;
c)the very lengthy delay in lodging the new objections;
d)the failure to provide any cogent explanation for the delay;
e)the failure to articulate any grounds of objection that were additional to those previously considered and rejected.
Similarly in relation to the assessments for the income years 2001 and 2002, the Tribunal found that:
a)the assessments were in accordance with income tax returns lodged by Ms Caporale;
b)no satisfactory cogent explanation for the delay had been provided – to the extent that part of the explanation related to a delay in preparation of financial statements of a related entity, no further explanation was provided as to why there was such a significant delay even after the preparation and finalisation of its accounts;
c)aside from vague references to oppressive behaviour by the Deputy Commissioner there did not appear to be any genuine merit in the dispute;
d)the applications for extension of time were more than a decade out of time – after such a long period the position of the Deputy Commissioner would be prejudiced.
The Tribunal is a specialist administrative body established for the purposes of determining tax disputes. Amongst the other grounds for denying an extension of time, the Tribunal has effectively found that Ms Caporale has not established that she has a genuine dispute of any merit which warrants the Tribunal extending the time. This is not a finding that this Court should readily interfere with.
In any event the evidence provided by Mr Cavanagh as to the tax debt did not in any way discharge the onus on Ms Caporale to establish that there was a genuine dispute as to the debt. In particular, in undertaking a review of Ms Caporale’s affairs to determine her “true” income:
a)Mr Cavanagh accepted that he did not have access to all of her bank statements for the relevant years (albeit he said he could have obtained them from the bank if he thought it was necessary)[21];
b)for some of the income years he in fact had no bank statements[22];
c)he accepted Ms Caporale’s explanation without further enquiry as to a number of matters – for example, as to how she funded her personal living expenses, how she funded the acquisition of the residential units at Hurstville, and the source and nature of funds received from third parties (being purported gifts from relatives and the repayment of purported loans from a business known as Caporale Designs);
d)had not seen any financial statements of Caporale Designs to establish whether any loans were made by Ms Caporale to the company carrying on the business or any other loan documentation between Ms Caporale and Corporate Designs;
e)admitted that his job was not that of a tax auditor to undertake an investigation and that he had not attempted to undertake such an investigation.
[21] see annexure to his affidavit sworn on 7 May 2012
[22] see annexure to his affidavit sworn on 7 May 2012
There was a suggestion by Ms Caporale that Mr Cavanagh required more time to complete the “task”. However, Mr Cavanagh has previously stated on 7 May 2012 that he needed only 8 more weeks to complete the task, again on 8 August 2012 he stated he needed only 8 more weeks, and yet on 7 November 2012 the task was still not completed[23]. Ms Caporale did lodge further tax returns on 3 December 2012 but the Deputy Commissioner submits that they are not credible. The reality is that Ms Caporale is not able to discharge the burden of proving that there is any genuine dispute in respect of the tax debt.
[23] see [12] of the affidavit of Mr Cavanagh sworn on 7 May 2012 and [10] of the affidavit of Mr Cavanagh sworn on 8 August 2012
Deputy Commissioner acting bona fide
In the circumstances in which the assessments were issued it is difficult to contemplate any circumstance where Ms Caporale could possibly allege that the Deputy Commissioner, in issuing the assessments, acted in some way fraudulently, or did not act bona fide such that the assessments might be set aside pursuant to an application under s.75(v) of the Constitution or s.39B of the Judiciary Act or that Ms Caporale has some set-off or cross-claim for damages.
Ms Caporale refers to the Deputy Commissioner seizing records 12 years ago from Mr Guirgis, the former tax agent, and those documents having never been returned “since 2000”. However, Ms Caporale then asserts that the documents seized from Mr Guirgis were incomplete and inaccurate. Accordingly, they could not be of any assistance to Ms Caporale.
I find that, on the evidence, “other sufficient causes” cannot be identified to allow the Court to exercise its discretion to dismiss the creditors petition.
Conclusion
I am satisfied that Ms Caporale committed the act of bankruptcy alleged in the petition. I am satisfied with the proof of the other matters of which s.52(1) of the Bankruptcy Act requires proof. I am not satisfied that Ms Caporale has advanced any reason for the Court to refrain from making a sequestration order or to further delay doing so. I will grant the relief sought in the petition.
I certify that the preceding forty-five (45) paragraphs are a true copy of the reasons for judgment of Driver FM
Associate:
Date: 4 February 2013
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