Deputy Commissioner of Taxation v Catanese

[1999] FCA 564

FEDERAL COURT OF AUSTRALIA

Deputy Commissioner of Taxation v Catanese [1999] FCA 564

BANKRUPTCY – Bankruptcy Notice – whether arrangement made to creditor’s satisfaction for settlement of judgment debt

Bankruptcy Act 1966, s 41, s 43

Bankruptcy Regulations, reg 4.02

Re Deane; Ex parte Van Reesema (1961) 20 ABC 259 referred
Newton v Federal Commission of Taxation (1958) 98 CLR 1 referred
Commissioner of Taxation v Lutovi Investments Pty Ltd (1978) 140 CLR 434 discussed
News Limited v Australian Rugby Football League Limited (1996) 58 FCR 447 referred
Hutchins v Commissioner of Taxation (1987) 14 FCR 510 distinguished

DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA v ELIZABETH CATANESE
VG 7743 of 1998

KENNY J

MELBOURNE
4 MAY 1999

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 7743 OF 1998

BETWEEN:	DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Applicant
AND:	ELIZABETH CATANESE Respondent
JUDGE:	KENNY J
DATE OF ORDER:	4 MAY 1999
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

(1)Leave is granted to amend the Notice of Intention to Oppose Creditor’s Petition dated 23 February 1999 by deleting paragraphs 1, 2 and 3 and adding “within 21 days of the service of the bankruptcy notice, the debtor made an arrangement to the creditor’s satisfaction for the settlement of the debt.”

(2)A sequestration order be made against the estate of Elizabeth I Catanese.

(3)The applicant’s costs of and incidental to the petition, including reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966 (Cth).

Note:  The date of act of bankruptcy is 27 July 1998.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 7743 OF 1998

BETWEEN:	DEPUTY COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA Applicant
AND:	ELIZABETH CATANESE Respondent

JUDGE:	KENNY J
DATE:	4 MAY 1999
PLACE:	MELBOURNE

EX TEMPORE REASONS FOR JUDGMENT

1. By a petition dated 21 August 1998, the Deputy Commissioner of Taxation (“the Deputy Commissioner”) applies for a sequestration order, pursuant to s 43 of the Bankruptcy Act 1966 (Cth) (“the Act”), against the estate of Elizabeth I Catanese (also referred to as the judgment debtor).

2. The Deputy Commissioner obtained judgment against Ms Catanese in the County Court of Victoria in the sum of $50,108.99 on 23 January 1998. Ms Catanese made a number of payments in reduction of the judgment debt, amounting to some $40,000. As at 26 June 1998, however, an amount of $11,282.34 remained outstanding. A bankruptcy notice was issued against Ms Catanese on 26 June 1998. The notice claimed the amount which remained owing under the judgment debt, namely, $11,282.34. In accordance with the form prescribed, under subs 41(2) of the Act, by reg 4.02 of the Bankruptcy Regulations, the notice relevantly stated:

   3.You are required, within 21 days after service on you of this Bankruptcy Notice:

   (a)    to pay to the creditor the amount of the debt; or

   (b)    to make an arrangement to the creditor’s satisfaction for settlement of the debt.

   …

   5.Bankruptcy proceedings may be taken against you if, within the time stated in paragraph 3, above:

   (a)   you do not comply with the requirements of either paragraph 3(a) or paragraph 3(b) above; and

   (b)   the Federal Court does not extend, or is not deemed to have extended, the time for compliance with this Bankruptcy Notice.

3. The bankruptcy notice was served on Ms Catanese on Saturday, 4 July 1998.  On its terms it was required to be complied with within 21 days of that date.  Ms Catanese failed to comply with the notice during the time limited for compliance.  The Deputy Commissioner submits that Ms Catanese therefore committed an act of bankruptcy on Monday, 27 July 1998.  In presenting his petition for sequestration, the Deputy Commissioner relies upon that act of bankruptcy. 

4. Following a grant of leave to amend her amended notice of intention to oppose the creditor’s petition, Ms Catanese opposed the petition on the sole ground that:

   Within 21 days of the service of the bankruptcy notice, the debtor made an arrangement to the creditor’s satisfaction for the settlement of the debt.

   It is to be borne in mind in considering Ms Catanese’s submissions in relation to that ground that the debt that the Deputy Commissioner claims is owing to him from her is considerably more than $11,282.34. The Deputy Commissioner says, in his petition, that on 27 July 1998 Ms Catanese owed the sum of $165,178.87 to him. In an affidavit sworn by Mr Darryl Gove on 12 April 1999 on behalf of the Deputy Commissioner, Mr Gove deposes that “the records of the applicant creditor show that the sum of $165,178.87 referred to in … the creditor’s petition was on 27 July 1998, and is still, wholly due and unsatisfied.” That sum is made up of group tax payable pursuant to s 221F of the Income Tax Assessment Act 1936 and amounts outstanding in respect of charges under the Superannuation Guarantee (Administration) Act 1992. 

5. In a facsimile dated 24 June 1998, Mr Gove, on behalf of the Deputy Commissioner, sent Mr Gooden, accountant for Ms Catanese, a copy of the Deputy Commissioner’s reconciliation of the sums owed by her.  The facsimile relevantly read:

   Following is a copy of our reconciliation.  Break-up of the debt is as follows;

a/	Amount claimed on bankruptcy notice.	$  11,282.34
b/	1997 financial year shortfall.	$     2984.05
c/	Additional taxes imposed on b/.	$    1,147.70
d/	August 1997 - May 1998 tax instalment deductions.	$119,302.96
e/	Additional taxes imposed on d/.	$  33,538.95
f/	August 1995 tax instalment deductions.	$      584.17
$168,840.17

Note 1:  Bankruptcy Notice was prepared today.

1. After service of the bankruptcy notice, Mr Gooden wrote to Mr Gove by letter dated 21 July 1998 (an earlier draft being dated 14 July 1998), stating, in part:

   Thank you for your reconciliation previously provided.  The adjusted amounts … will not significantly change the total debt.  However, I understand from your reconciliation that you have no record of receipt of [certain] payments ….  Would you please confirm that you have no record of receipt ….  Upon receiving your confirmation, I will need to seek assistance of the bank to trace the cheques.

   I have recently been provided a copy of your most recent Bankruptcy notice in the sum of $11,282.34.  Ms Catanese advises me that payment of this amount is presently being arranged to be forwarded to you as soon as possible. 

   In the meantime, should you have any queries regarding the above, please do not hesitate to contact me directly. 

2. Mr Gove, on behalf of the Deputy Commissioner, replied by letter dated 23 July 1998.  That letter was addressed to Brooke Bird and Co and marked to the attention of Mr Gooden.  It relevantly read:

   Dear Sir,

   BANKRUPTCY NOTICE – ELIZABETH I CATANESE

   I acknowledge receipt of your facsimile dated 21 July 1998.  Please note that of the four payments listed, only the third and fourth payments have not been received.  The first and second payments listed were credited to February 1997 (note:  $2.50 of $5,000.00 received on 29 July 1997 was credited to October 1996).

   I wish to advise you that the total amount owing by the above-named debtor is $176,265.98, and this amount is comprised as follows:

   Amount as per our facsimile dated 24 June 1998 $168,840.17 Interest updated to 23 July 1998 $1698.55
   Super guarantee charge $5727.68
   Totalling $176,265.98.

   You are advised that this amount is due and payable immediately.  To avoid a creditor’s petition being filed in the Federal Court and a hearing being set down, payment must be received by 4.00 pm on 30 July 1998.  Payment must be by bank cheque and should be posted or hand-delivered to c/o Darryl Gove – Legal Collections, 990 Whitehorse Road (P O Box 9825), Box Hill Vic 3128.

3. In an affidavit sworn 23 February 1999, Ms Catanese deposed, in paragraph 6, that:

   I refer to the letter which was marked “Bankrupty Notice – Elizabeth I Catanese”.  As the letter referred to the Bankruptcy Notice and that total amount owing under that notice was $11,232.35 I believed and understood that this amount had to be paid by 30 July 1998 by bank cheque to be posted or hand-delivered to Darryl Gove in Box Hill. 

   Ms Catanese went on to depose and, it is not disputed, that on 31 July 1998 she attended at the Australian Taxation Office in Box Hill in order to make the payment of the $11,282.34 outstanding under the bankruptcy notice.  She further deposes, in paragraph 8 of her affidavit that, “I believe that the outstanding debt referred to in the Bankruptcy Notice had been satisfied and as a result I have not committed any act of bankruptcy”.

4. The Deputy Commissioner contends that, in the circumstances, he is entitled to a sequestration order against the estate of Ms Catanese.  In so doing he relies on the affidavits of Barry John Reaper sworn 6 July 1998 and 27 October 1998, the affidavits of Darryl Gove sworn 21 August 1998, 12 April 1999 and 30 April 1999, the affidavit of Angela Evans sworn 28 September 1998, the affidavit of Kim McDaniells sworn 3 May 1999 and the affidavit of Stephen Linden sworn 3 May 1999.

5. The Deputy Commissioner’s case is that the debt referred to in the bankruptcy notice was not paid within the time limited for compliance and, by operation of s 40(1)(g) of the Act, Ms Catanese has committed an act of bankruptcy. This is not, it is said on his behalf, a case of accord and satisfaction.

6. The answer made by the judgment debtor is that she and the Deputy Commissioner entered into an arrangement of the kind referred to in paragraph 3(b) of the bankruptcy notice, pursuant to the Deputy Commissioner’s letter of 23 July 1998.  Counsel for Ms Catanese contends that the bankruptcy notice cannot, for that reason, be relied upon by the Deputy Commissioner.  It is immaterial, so he says, that Ms Catanese subsequently made default under the arrangement. 

7. I accept that, if a creditor and a judgment debtor enter into an arrangement to the creditor’s satisfaction for the settlement of a debt prior to the time limited for compliance by a bankruptcy notice, the creditor cannot rely on the bankruptcy notice to found an act of bankruptcy: see para 3(b) of the form prescribed, under subs 41(2) of the Act, by Bankruptcy Regulations, reg 4.02. See also Re Deane; Ex parte Van Reesema (1961) 20 ABC 259 at 261 per Virtue J and the cases cited therein. That is so whether or not the judgment debtor subsequently honours the arrangement. The availability of the bankruptcy notice must be judged as at the date when compliance with it was required: see Ex parte Van Reesema at p 262.  As already noted, the date for compliance with the bankruptcy notice in question in the present case was 27 July 1998.

8. Am I to be satisfied that the Deputy Commissioner and Ms Catanese entered into a relevant arrangement prior to that date?  The word “arrangement” has been judicially considered on a number of occasions, frequently in the context of income tax legislation.  In Newton v Federal Commission of Taxation (1958) 98 CLR 1 at 7, their Lordships expressed the opinion that:

   The word “arrangement” is apt to describe something less than a binding contract or agreement, something in the nature of an understanding between two or more persons – a plan arranged between them which may not be enforceable at law.

9. Although Aickin J was in the minority in Commissioner of Taxation v Lutovi Investments Pty Ltd (1978) 140 CLR 434, his observations upon the word “arrangement”, at 463, are helpful. His Honour said:

   The word “arrangement” has several meanings and each reflects a broad and imprecise conception.  At least one may be put aside immediately.  The word may in some circumstances mean no more than a plan drawn up by and to be implemented by one person alone.  In the present context it cannot have that meaning, because of the presence of the words “entered into”.  The most appropriate meaning for the present context would seem to be an agreed “disposition of measures for a particular purpose”, or an “arranged condition or order of things”.  If, as the context requires, the arrangement must be “entered into” it is hard to see how it can be distinguished from an agreement, and, in the present section it seems likely that it does no more than widen the content of the word “agreement” so as to include dealings which are less precise than the word agreement alone might suggest, and perhaps to emphasise that it is not to be confined to binding or enforceable agreements.

   In that case Gibbs and Mason JJ, in their joint judgment, drew attention, at 443, to effect of the words “entered into” which appeared in the relevant legislation, as pointing to an arrangement which is bi-lateral or multi-lateral.  They went on, at 444, to adopt the explanation of arrangement which found favour in Newton’s case.  Their Honours added at

   444:

   It is, however, necessary that an arrangement should be consensual, and that there should be some adoption of it.  But in our view it is not essential that the parties are committed to it or are bound to support it.  An arrangement may be informal as well as unenforceable and the parties may be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it. 

   (The significance of the reservation made by Gibbs and Mason JJ in Lutovi is discussed by Burchett J in News Limited v Australian Rugby Football League Limited (1996) 58 FCR 447 at 526-528. Nothing turns on that here.)

10. Counsel for Ms Catanese submitted that the parties’ entry into such an arrangement of the relevant kind is to be inferred from (1) the statement made on behalf of Ms Catanese, by letter dated 21 July 1998, that she would forward payment of the sum of $11,282.34 “as soon as possible”; (2) the terms of the Deputy Commissioner’s letter of 23 July 1998, including its heading; and (3) the payment of the sum of $11,282.34 on 31 July 1998. 

11. According to Ms Catanese’s counsel, the arrangement was that Ms Catanese was to pay the entire sum of $176,265.98 on or before 30 July 1998 in discharge of the bankruptcy notice (respecting the sum of $11,282.34 which was to be paid on or before 27 July 1998).  Counsel for Ms Catanese had, of course, to concede that Ms Catanese had made default under the arrangement which he said had been made.  That default did not, if he were correct in his primary submission, revive the bankruptcy notice, however.

12. Having regard to the evidence before me, I am unable to accept Ms Catanese’s submission that the Deputy Commissioner and Ms Catanese entered into an arrangement of the kind referred to in para 3(b) of the bankruptcy notice before 27 July 1998.  It is true that the letter of 23 July 1998 bore the heading “Bankruptcy Notice – Elizabeth I Catanese” and that any immediately foreshadowed petition was necessarily a petition founded upon an act of bankruptcy arising from non-compliance with that bankruptcy notice.  But the letter of 23 July contained no express mention of the possibility of an arrangement of the kind for which Ms Catanese’s counsel contends.  Indeed, apart from the heading, it contains no reference to the bankruptcy notice or to the sum of $11,282.34 (otherwise than implicitly as a part of the sum of $176,265.98).  The letter refers to the total sum said to be “due and payable immediately” to the Deputy Commissioner, being the sum of $176,265.98.  The statement made in Ms Catanese’s accountant’s letter of 21 July that the sum of $11,282.34 would be “forwarded … as soon as possible” may be read as an acknowledgment of her indebtedness and intention to discharge it, but I do not consider it to be evidence that Ms Catanese intended to enter, or even was disposed to enter, an arrangement of the kind for which her counsel contends.  Further I do not think that the submission made on behalf of Ms Catanese can derive any support from the fact that she subsequently chose to pay a fraction of the debt claimed by the letter of 23 July, on a day immediately subsequent to the day appointed in that letter.  Notwithstanding what Ms Catanese says about her understanding of relevant matters, it is not, I think, possible to infer from her conduct on 31 July a genuine, if perhaps misguided, belief that she was acting in conformity with any arrangement of the kind referred to in para 3(b) of the bankruptcy notice.  It is not, I think, possible to rely upon her subsequent conduct as, in some way, supportive of her entry into an arrangement with the Deputy Commissioner. 

13. This is not a case of the kind referred to by Jenkinson J in Hutchins v Commissioner of Taxation (1987) 14 FCR 510 at 524 where entry into the arrangement and payment in accordance with the arrangement were said to be contemporaneous events. None of the matters to which counsel for Ms Catanese has referred support a finding that there was any meeting of minds with regard to the suggested arrangement. There is nothing to indicate Ms Catanese’s adoption of that arrangement. Thus, even allowing for the breadth and imprecision of the term “arrangement”, I do not think that the material before me is capable of establishing that Ms Catanese and the Deputy Commissioner entered into an arrangement within the meaning of para 3(b) of the bankruptcy notice prior to 27 July 1998.

14. Section 43(1) of the Act provides, amongst other things, for the making of a sequestration order against a debtor personally present or ordinarily resident in Australia, where the debtor has committed an act of bankruptcy. In my view, Ms Catanese committed an act of bankruptcy on 27 July 1998. I am satisfied of the matters of which s 52(1) of the Act requires proof, and notwithstanding the careful argument of counsel for Ms Catanese, I reject the sole ground of opposition to the petition relied upon by Ms Catanese.

I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny.

Associate:

Dated:             4 May 1999

Counsel for the Applicant:	Mr S P Gardiner
Solicitor for the Applicant:	Australian Government Solicitor
Counsel for the Respondent:	Mr G Bigmore with Mr J Podaridis
Solicitor for the Respondent:	Belleli King & Associates
Date of Hearing:	3 May 1999
Date of Judgment:	4 May 1999