Deputy Commissioner of Taxation v CHRISTINE KARLISH
[2012] FMCA 456
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v CHRISTINE KARLISH | [2012] FMCA 456 |
| COSTS – Bankruptcy proceedings – whether costs should be awarded against debtor – whether the Commissioner was reasonable in commencing the initiating application – whether there was a reasonable basis to suspect insolvency – non-payment of debt was reasonable indicator of insolvency – initiating application was reasonable – costs awarded. |
| Taxation Administration Act 1953 (Cth) Uniform Civil Procedure Rules 1999 (Qld) |
| Sandell v Porter (1966) 115 CLR 666 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | CHRISTINE KARLISH |
| File Number: | BRG 293 of 2011 |
| Judgment of: | Burnett FM |
| Hearing date: | 16 May 2012 |
| Date of Last Submission: | 16 May 2012 |
| Delivered at: | Brisbane |
| Delivered on: | 16 May 2012 |
REPRESENTATION
| Solicitors for the Applicant: | Gadens Lawyers |
| Solicitors for the Respondent: | James Conomos Lawyers |
ORDERS
That the application filed 21 April 2011 be dismissed.
That the respondent pay the applicant’s costs assessed in the sum of $5,540.00.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 293 of 2011
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| CHRISTINE KARLISH |
Respondent
REASONS FOR JUDGMENT
(Ex Tempore)
In this application the parties agree that the urgent application should be dismissed. The only argument that arises concerns costs. The Applicant seeks costs and the Respondent resists such an order, instead seeking no order as to costs. The thrust of the Respondent’s submission is really that this particular Application was inappropriate as it is in truth a debt collection action rather than an insolvency proceeding.
On its face, having regard to the matters particularly identified in paragraph 7 of the Respondent’s submissions, that would indeed appear to be the case. It would seem on the basis of the material not before the Court on 31 August that the Respondents had between them assets with a net value of about two and a half million dollars. Against that they had a debt to the Tax Commissioner of about half a million dollars. None of this was ever tested and the Respondent says the Applicant should have commenced enforcement proceedings under the Uniform Civil Procedure Rules 1999 (Qld) (UCPR) or at least conducted some form of oral examination, as it has power to do under the Taxation Administration Act 1953 (Cth), before commencing this Application.
Ultimately the question becomes one of whether or not the Applicant was reasonable in commencing what is prima facie an insolvency application rather than pursuing other avenues. The Commissioner contends that the application was properly brought as an insolvency application.
The test of insolvency is, as stated by Barwick CJ in Sandell v Porter (1966) 115 CLR 666, a conclusion of fact which is drawn from a consideration of the debtor’s financial position in its entirety and generally not drawn by evidence of a temporary lack of liquidity. The Chief Justice noted that it is the debtor’s inability, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as and when they fall due which indicates insolvency.
The answer to whether or not the applicant was reasonable in commencing insolvency proceedings at the time that it did is, in my view, in part answered by the way in which this application progressed. Mr Egan has submitted on behalf of the debtors that the reason they did not pay was because they did not wish to pay, in other words, it was a principled stand. This matter required some intensive case management in order to get them to a point where they have paid.
During the course of the proceeding it was evident that there were difficulties between the creditors and their bank, and difficulties also in relation to decisions to be made regarding to the sale of property. The matter came before me on at least five occasions before a satisfactory result was achieved. With the benefit of hindsight it is easy to say that the debtors had sufficient assets, or sufficient equity in assets, to arrange their affairs to discharge the Applicant’s claim. However, I think it is fair to infer from the manner in which the Application progressed that that was not always the case and, as I have indicated to the parties, I had a distinct feeling that the debtors in this instance may have been insolvent in that they were unable to realise their assets in an orderly way so as to discharge the indebtedness to the Commissioner.
That, of course, is an inference drawn having regard to matters of contemporary affairs, in particular, my general observations from reading newspapers and other financial material about the state of our economy which sadly, particularly in rural parts, is in very poor health. Ultimately, I think that the Commissioner had a reasonable basis to believe that at the time it commenced its Application the non-payment of the debt, being the sizable sum that it was, was prima facie evidence of insolvency and that the Application was justified.
In that regard I am particularly mindful of the income which the debtor had, which would suggest that the sum payable by way of income tax was extraordinarily large. I note, for instance, in the Respondent’s submission that while its business operated profitably, with each of the respondents having a taxable income of about $80,000.00 in the last financial year, that of itself was only about one tenth of the sum due to the Commissioner, without considering any tax effect on that income. On balance, it seems to me that the Commissioner was within his rights in commencing the Application and I think the Commissioner ought to be allowed costs.
I propose to award costs on the scale basis. I calculate costs as follows:
Outlays $1,000.00
Stage 1 $2,500.00
8 appearances @ $255.00 each $2,040.00
Total: $5,540.00I will direct in each application that the application be dismissed and that the Respondent pay the Applicant the sum of $5,540.00.
I certify that the preceding ten (10) paragraphs are a true copy of the reasons for judgment of Burnett FM
Date: 16 September 2013
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