Deputy Commissioner of Taxation v Evans
[2014] FCCA 188
•14 February 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v EVANS | [2014] FCCA 188 |
| Catchwords: PRACTICE AND PROCEDURE – Creditor’s Petition – dismissal of creditor’s petition due to failure to make order extending life of the petition before statutory period had lapsed – slip rule cannot be invoked to extend life of creditor’s petition retrospectively. |
| Legislation: Bankruptcy Act 1966 (Cth), ss.5, 33(1)(c), 52(4), 52(5) Civil Procedure Act 2005 (NSW), s.101 Federal Court of Australia Act 1976 (Cth), s.52(2)(a) Federal Court Rules 2011 (Cth), r.39.06 |
| Capital Finance Australia Pty Ltd v Nathan [2008] FMCA 1363 Deputy Commissioner of Taxation v Graham [2008] FMCA 1679 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | PETER EVANS |
| File Number: | SYG 2979 of 2012 |
| Judgment of: | Judge Lloyd-Jones |
| Hearing date: | 11 July 2013 |
| Delivered at: | Sydney |
| Delivered on: | 14 February 2014 |
REPRESENTATION
| Solicitor for the Applicant: | Ms C. Fox of Hunt & Hunt |
| Solicitor for the Respondent: | Mr J. Boyle of Boyle Associates |
ORDERS
The Creditor’s Petition filed on 13 December 2012 be dismissed.
Each party bear its own costs of the proceedings.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYG 2979 of 2012
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| PETER EVANS |
Respondent
REASONS FOR JUDGMENT
Lapse of the Creditor’s Petition
The hearing of this proceeding took place on Thursday 11 July 2013. At the end of that hearing I indicated to the parties to the proceedings that I would reserve my judgment at that moment, prepare a brief judgment in respect of the Notice of Opposition so that I could satisfy myself that all of the requirements of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”) in respect of various provisions therein had been met and would advise the parties when I had completed that task. I further indicated that I would not make any other orders until that task had been completed. In the subsequent days a substantial part of the reasons were prepared, but before their completion I was hospitalised for an extended period for major surgery that required a long convalescence. On returning to chambers I recommenced work on a number of reserved decisions, but was unable to address this matter until early January 2014. By that time the Creditor’s Petition had lapsed on 13 December 2013, being 12 months after the date the Petition was presented. This was an oversight by me and my staff. I note that the Court file contains no correspondence from either party and, particularly, no correspondence from the petitioning creditor seeking an extension prior to the expiry of the 12 months from the date of filing of the creditor’s petition.
During my extended absence, had the petitioning creditor approached the Court, orders could have been made extending the life of the creditor’s petition by either a registrar of this Court or a fellow judicial officer. From my return to work, had the Court’s attention been drawn to the issue of the approaching expiry of the creditor’s petition, similar arrangements could have been made for an appropriate order to be made in this respect.
The Full Court’s reasons Flint v Richard Busuttil & Co Pty Limited [2013] FCAFC 131 per Allsop CJ, Katzmann and Perry JJ considers the validity of an order made retrospectively extending the life of a creditor’s petition. The provisions of the Bankruptcy Act were considered and, in particular, ss.33(1)(c), 52(4) and 52(5) as to whether this Court has the power to extend the life of a creditor’s petition after it has lapsed and whether the slip rule can be used for that purpose. The Full Court found that those avenues were not available to this Court.
The Creditor’s Petition found these proceedings, in the circumstances and following the authority of the Full Court of the Federal Court, must be dismissed; however, I have published my reasons for dismissing the Notice Stating Grounds of Opposition to the Creditor’s Petition filed by the respondent debtor on 14 January 2013.
Introduction
On 13 December 2012 the applicant creditor in these proceedings, the Deputy Commissioner of Taxation (the “DCT”) filed a creditor’s petition (the “Petition”) seeking a sequestration order under s.43 of the Bankruptcy Act against the estate of the respondent debtor, Peter Evans. The Petition asserts that Mr Evans owes the DCT the amount of $273,339.40, comprising of:
a)The sum of $249,018.11, due under final judgment obtained in the District Court of New South Wales at Sydney on 7 June 2012 inclusive of $0.00 costs;
b)The sum of $904.00, being further interest on the judgment debt claimed under paragraph 1(a) calculated under Part 36 Rule 36.7 of the Uniform Civil Procedure Rules from 8 June 2012 to 20 June 2012;
c)An amount of $24,518.23 being for additional debt due and payable as at 24 July 2012 by the respondent debtor pursuant to the Taxation Administration Act 1953; and
d)Less the amount of credits in the sum of $1,100.94 received since the date of the judgment referred to at [5](a) above.
The bankruptcy notice founding the Petition (the “Bankruptcy Notice”) followed a judgment obtained in the District Court in Case Number 2011/00368211. The Bankruptcy Notice was personally served on Mr Evans on 3 July 2012 at 3.10pm by Mr Andrew Gabriellian who served a copy of Bankruptcy Notice No. BN 3750 issued 22 June 2012, a copy of the District Court’s judgment in Case 2011/00368211, and a copy of the schedule of the post-judgment interest calculation. The DCT contends Mr Evans committed an act of bankruptcy by failing to comply on or before 24 July 2012 with the requirements of the Bankruptcy Notice served on him on 3 July 2012 or to satisfy the Court that he had a counter-claim, set-off or cross-demand equal to or more than the sum claimed in the Bankruptcy Notice, being a counter-claim, set-off or cross demand that he could not have set up in the action in which the judgment referred to in the Bankruptcy Notice was obtained.
The matter was referred to this Court by Deputy District Registrar Segal on 25 February 2013 from the Registrar’s Bankruptcy List and on that occasion the following orders were made by the Court:
1. The applicant to file any evidence in reply required to the debtor’s accountant’s report by 11 March 2013.
2. The respondent to file any further affidavits by 9 April 2013.
3. The applicant to file any further reply affidavits by 23 April 2013.
4. The matter be listed for hearing on 30 April 2013, at 10.15am, in court 6D, John Maddison Tower, 88 Goulburn Street.
Under my instruction, and due to a conflict in my timetable, the hearing set down for 30 April 2013 was moved to 3 May 2013 at 10.15am. On 17 April 2013 my chambers received facsimile correspondence from Mr Boyle, representing Mr Evans, requesting that the matter be relisted for further directions. Mr Boyle stated that the new hearing date did not suit himself due to travel commitments or his client, due to family and business obligations. Mr Boyle also highlighted a misunderstanding of the timetable for the filing of evidence. The matter was listed for further directions on 26 April 2013 and a new procedural timetable was ordered, along with a new hearing date of 11 July 2013.
Notice Stating Grounds of Opposition to the Petition
On 14 January 2013 Mr Evans filed a notice stating grounds of opposition to the Petition (the “Notice of Opposition”). The Notice of Opposition pleads the following grounds:
1. The Respondent is NOT Insolvent.
2. The Applicant has failed or omitted to fulfil and complete negotiations in relation to claimed remission or waiver of certain penalties and interest. The Applicant has not acted honestly or bona fide in respect to same.
3. The Applicant has failed to respond to numerous attempts to negotiate the total of the alleged debt, or agree to an appropriate Time payment scheme.
4. It would be harsh, unfair, unreasonable, un just and/or inequitable for the Applicant to seek this Order in circumstances where negotiations were NOT formally and professionally completed and/or not carried out in a bone fide manner, and where these proceedings are just a “debt recovery exercise.”
5. The Applicant has failed to properly and correctly exercise its Statutory role and exercise its remission, waiver and compassionate “settlement discretions” in seeking to proceed to full recover of all interest and Penalties,: and has failed to properly and correctly consider the personal and business handicaps and setbacks the Respondent and his Family has suffered .
6. The Applicant has ignored the formal instalment repayment submission made by the Respondent, inter alia, on the 17/02/2012. Which is a fair and reasonable one, and which proves the Solvency and income of the Respondent.
7. The Respondent had placed all good faith in his Tax Agent in negotiating and concluding the updating of his Returns and coming to a rational and achievable arrangement for payment in full. Despite those best efforts, the Applicant has acted Unconscionably in seeking Sequestration; by its failure to advise “negotiations” had been concluded, by failure to accept reasonable offers, by adding additional (post Default Judgment) amounts ($24,518.23) to the claim, which is un particularised and unknown to the Respondent or his professional advisors.
8. The Respondent disputes and does not agree with the amount claimed and the manner that interest and penalties have been calculated. The Respondent denies being indebted in the amount alleged.
9. The Respondent failed to defend or set aside the District court proceedings and Bankruptcy Notice as there was a grave misunderstanding; to the effect that the settlement negotiations were still continuing and that remission or waiver of default penalties and interest might still be agreed. The Respondents reasonable and achievable instalment repayment proposals have been ignored.
10. That the Creditors Petition is Invalid and should be dismissed as the Bankruptcy Notice upon which it is based, overstated the debt; due to the incorrect rate of Interest having been charged (should be only 9.5% not 10.25%). Further, it was not based upon a Certified Copy of the relevant Judgment/ order.
11. It would be a possible abuse of process for the Applicant to seek to obtain a Sequestration Order in circumstance where the Respondent is Solvent and where reasonable time has not been allowed for a rational and ordered disposal of assets, Securing or compounding of the debt, and/or that instalment arrangements have not been properly considered and formal negotiation correctly and formally concluded.
In support of the Notice of Opposition the following evidence was filed:
a)Affidavit of Peter Evans filed 22 January 2013 and sworn 22 January 2013 (the “Evans Affidavit of 22 January”);
b)Affidavit of Peter Evans filed 25 February 2013 and sworn 25 February 2013 (the “Evans Affidavit of 25 February”);
c)Affidavit of Alexander Ebert filed 25 February 2013 and sworn 25 February 2013 (the “Ebert Affidavit of 25 February”);
d)Affidavit of John Boyle filed 26 April 2013 and sworn 26 April 2013(the “Boyle Affidavit of 26 April”);
e)Exhibit “A” being Medical Certificate from St Michael Family Medical Practice;
f)Exhibit “B” being St George Hospital – Cancer Care Centre “Radiotherapy Treatment Appointments”; and
g)Exhibit “C” being ATO Statement of Account for Mr Peter Evans, Details of Calculation of Penalties.
In relation to the Petition the following material was filed but not formally read into evidence”:
a)The Petition; and
b)The Affidavit of Service of the Bankruptcy Notice sworn by Andre Gabriellian on 7 July 2012.
The Court has had to refer to some of this material in order to consider some of the objections raised to the Petition. The representative of Mr Evans made reference to information contained in this material without seeking to formally rely on it.
Submissions
Mr Evans’ Submissions
At the hearing held on 11 July 2013, Mr Boyle, appearing for Mr Evans, attempted to file in court an affidavit sworn by Peter Evans which attached a medical certificate in respect of Mr Evans. Ms Fox, appearing for the DCT, opposed the filing of that affidavit and argued that the affidavit was not in compliance with the orders that had been previously made. Mr Boyle submitted that there was no substantially new material in the affidavit other than the medical certificate and that Mr Evans’ ill health had disrupted the ability to organise expert evidence as well as preventing him preparing an affidavit as to Mr Evans’ solvency, as he had previously sought to do. Mr Boyle submitted that Mr Evans’ cancer treatment had made it too problematic to arrange further evidence, and therefore, he intended to rely on the evidence that was already before the Court.
Ms Fox offered an alternative approach where the medical certificate and a supporting document from St George Hospital could be handed up as exhibits. This approach was adopted and the documents were identified at [10](e) and [10](f) above as Exhibits “A” and “B”, respectively.
Mr Boyle indicated he had no more evidence to hand up in relation to the Notice of Opposition and reiterated that the position that Mr Evans finds himself in was due to an unfortunate set of circumstances and, due to his continuing misfortunes, he was unable to file an affidavit of solvency on the day of the hearing. Mr Boyle indicated that he relied on the existing evidence to support the Notice of Opposition.
The Evans Affidavit of 22 January sets out the background events relating to these proceedings at [4]-[9], as follows:
4. I fully admit that from 1997 onwards, I had become too clinically depressed and personally disorganised to get around to doing my yearly Tax Returns. I am a Watchmaker and clock repairer. I have made a small subsistence income from doing this trade all my Life. Over the years I have either just worked from Home or rented various small retail shops.
5. After a few years of falling behind with my Taxation Obligations it all became too confused and agonising to try to work it all out. I just went into total denial as to the problem. I was just struggling to keep this small business open and get my daily work done. I have particularised these facts herein and in the attachments hereto. I just could not cope.
6. There was never anything complicated about my Income and Tax deductions for each year. I have banked all funds received and had the Bank Statements. I always keep boxes of receipts and invoices. It was mainly because I then did not have the cash to pay any large Tax bill that setting aside all the time to sort the paper work might have been worth it.
7. As the years went by I failed to tell my Wife and adult children about the problem. This deepened My Denial. I then fell into “cover-up” mode. My depression only became worse as a result of this.
8. The personal and business set-backs, disappointments, health traumas, disasters and practical problems I encountered from 1985 onwards, and especially from 1997 until recently are sad and extensive. Looking back, I frankly don’t know how I have kept going on. It was only once my Wife’s mental and physical health improved a few years ago, and she was able to assist me in my business a bit more, that I was able to come clean to her as to my failure to submit my Tax Returns for all those years.
9. It has only been because of her care and practical support since that time, about 2010, that I managed to find and collate all my Accounting Books and business records, and gradually instruct my Tax Agent, Alex Ebert Accounting, to get the Tax Returns for the years ended 2001 to 2010 Lodged and assessed. (That’s 10 separate Returns.)
The balance of the Evans Affidavit of 22 January (at [10] – [23]) contains the details of Mr Evans’ circumstances, the ATO’s approach in respect of the debt owed, Mr Evans’ steps taken to address the debt owed to the ATO, medical reports and a statement as to solvency. The following annexures are attached to the Evan Affidavit of 2 January:
a)“A” - Statement of Claim in District Court of NSW;
b)“B” - Application for Remission of GIC for Mr Peter Evans;
c)“C” - Response to Statement of Claim;
d)“D” - Application for Payment Arrangement Proposal for Mr Peter Evans;
e)“E” - Timecraft History;
f)“F” - Taxation Returns;
g)“G” - Taxation and B.A.S. Returns; and
h)“H” - Medical Report.
The Evans Affidavit of 25 February, in effect, repeats the nature of the difficulties that Mr Evans faced, requests that the “ATO Guidelines for the sympathetic considerations of tragic and unfortunate case” be applied consistently and fairly, and submits what steps he has taken to refinance in order to pay the debt. The following annexures are attached:
a)“A” - Payment proposal refusal;
b)“B” - Request for clarification of additional $24,518.23;
c)“C” - Boyle Associates letter requesting full amount; and
d)“D” - Medical Report.
In the Ebert Affidavit of 25 February, Mr Ebert states that he is a registered taxation agent and accountant, and states:
3. I have been asked to analyses(sic) the amounts claimed by the Applicant herein, in relation to the alleged debts which the Bankruptcy Notice and Creditors Petition is based. I have previously requested such factual information from the ATO many times without response.
Mr Ebert then continues and provides an analysis of the Statement of Claim at [4]-[8]. At [9] he states, in respect of the Petition:
9. Further, the interest of the Bankruptcy Notice is calculated at 10.25%pa when my research says that the current rate for Default Judgement at that time, pursuant to s.101 The Civil Procedure Act 2005 (NSW) was only 9.5%. This over statement in the Bankruptcy may well be fatal to it’s and the Creditor Petition’s validity.
At [10] Mr Ebert sets out a further detailed analysis in respect of the additional $24,518.23 referred to as “additional debt due”.
The Boyle Affidavit of 26 April 2013 addresses the additional amount of $24,518.23 claimed to be owed to the DCT, together with issues of compliance with orders concerning the preparation and filing of evidence in respect of these proceedings.
Deputy Commissioner of Taxation’s Submissions
Ms Fox, in reply, took the Court to paragraph one of Mr Evans’ Notice of Opposition, where it states:
1. The Respondent is not insolvent.
Ms Fox argued that there is no evidence before the Court as to solvency, as admitted by Mr Boyle.
Ms Fox argued, in relation to the balance of the grounds pleaded in the Notice of Opposition, there is no support in any of the evidence relied on by Mr Evans for any of those propositions. Ms Fox submitted that her understanding of Mr Evans’ argument in the Notice of Opposition is, as a consequence of the DCT not agreeing to the payment plan proposal, such an action should restrict the DCT from proceeding with the Petition. Ms Fox handed up two cases to the Court in respect of this argument. Ms Fox first referred to the decision of Barnes FM (as she was then) in Deputy Commissioner of Taxation v Graham [2008] FMCA 1679 at [9], where her Honour stated:
…It has not been suggested that there was any defect in the bankruptcy notice (for example as to the amount claimed) and no notice was given by the debtor under s.41 (5) of the Act. Rather, it was suggested that the payments by the debtor to the creditor of $35,000 on 18 February 2008, $45,000 on 19 August 2008 and $61,000 on 31 October 2008 (of which $1,272 was payment of a costs order) had not been correctly applied to the debt that was owed by the debtor to the creditor as at the date of the act of bankruptcy. The debtor’s contention appears to be that the debt relied on by the creditor was not “still” owing as required under s.52(1)(c) of the Act (although there may now be other debts that did not exist at the date of the act of bankruptcy) because the three payments exceeded what Mr Dlakic understood to be the debtor’s indebtedness to the creditor at the date of the act of bankruptcy.
Ms Fox submitted that the current matter is a case where there has been no issue raised as to defects in the Bankruptcy Notice. Ms Fox then took the Court to [20] of Graham (supra), where her Honour continued:
20. The debtor also submitted that the payments he had made to the Deputy Commissioner of Taxationsince 7 August 2007 may not have been applied correctly to reduce the amount owed by him as from the date of bankruptcy.
Her Honour then concluded at [34]:
34. I am satisfied that in this case there was owing at the date of the act of bankruptcy as well as at the date of presentation and hearing of the petition a debt sufficient to enable the creditor to present the amended petition now relied on under s.44 of the Bankruptcy Act. I note that in Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 Gibbs J pointed out (at 260) that if the creditor was entitled to present a petition based on the statutory amount, the erroneous inclusion in the petition of an additional debt that was not liquidated or payable immediately or at a certain future time as at the date of the act of bankruptcy did not render the petition invalid.
Ms Fox then referred the Court to the decision of Barnes FM (as she was then) in Capital Finance Australia Pty Ltd v Nathan [2008] FMCA 1363 at [73], where her Honour stated:
73. In this case the judgment in question was a default judgment. However no fraud, collusion or miscarriage of justice or any reason for questioning whether there was in truth and reality a debt due to Capital has been demonstrated by Mr Nathan. Nor are special circumstances apparent on the evidence before the Court such as to warrant going behind the judgment. In that respect I have had regard to the fact that while the judgment was obtained by default, Mr Nathan applied to have it set aside in March 2005. That application was unsuccessful. It appears that there has been no appeal in respect of that decision. The evidence before the Court is not such as to establish that there are substantial reasons for doubting whether there is really a debt due to the creditor such as to warrant going behind the judgment.
Ms Fox argued that the matter presently before the Court is not a matter where the Court can warrant the exercise of going behind the judgment debt upon which the Petition is based.
Ms Fox proposed to hand up a business record entitled “Details of the Calculation of Penalties”, denoting the debt owed to the DCT By Mr Evans as at the day before the hearing. Mr Boyle objected to this course as he argued that the DCT had failed to serve particulars of the debt and the final calculation. This action, he argued, was one of the reasons Mr Evans had been unable and had refused to pay the debt as alleged. Mr Boyle argued that to hand up this document at this stage of the proceeding was inappropriate and he objected to this course of action. Mr Boyle argued that if Mr Evans or his client’s tax agent had been supplied with this document in January 2013 his client may have come to the conclusion that the debt was due and payable and the matter may have been finalised then.
Ms Fox, in response to the objection, argued that the document was a print-out from the Australian Tax Office portal. Ms Fox referred the Court to the Ebert Affidavit of 25 February at [10(e)], where Mr Ebert stated:
(e) I have today analysed the Respondent’s Tax Accounts on the ATO Agent’s Portal, in relation to the claims Mr. Bavin makes in his letter.
Ms Fox argued that the letter referred to in [10(e)] of Mr Ebert’s affidavit was a response to what Mr Boyle argued the DCT had not responded to. Ms Fox submits that the details in the document include a summary of the debt as denoted in the Bankruptcy Notice. The Bankruptcy Notice consists of three balances, being the client account, the income tax assessment and the recovery costs. Ms Fox submitted that the documents should be submitted into evidence as they are business records. Ms Fox argued that the document contains information which has been in the possession of Mr Evans’ tax agent through his Australian Taxation Office portal access. I agreed with Ms Fox’s submissions and the document entitled “Details of the Calculation of Penalties” was tendered and was marked as Exhibit “C”.
Consideration
I acknowledge the observations of Ms Fox that the Notice of Opposition filed on behalf of Mr Evans raises an argument that as a consequence of the DCT not agreeing to a proposed payment plan, the DCT should be prevented from proceeding with the Petition. This proposition has not been clearly put to the Court, nor is there evidence before the Court to support it. The Notice of Opposition itself is not clearly stated or argued. The issue in respect of the interest rate raised in ground 10 of the Notice of Opposition has been made without appropriate checking.
On 7 June 2012 the DCT obtained judgment against Peter Evans for the sum $249,018.11 in respect of tax owed to it and penalties in relation to prior years of assessment. Mr Evans, in the Evans Affidavit of 22 January, admits that he failed to lodge tax returns from 1997 onwards. Mr Evans explains that this failure was due to personal and business setbacks, disappointments, health traumas, disasters and practical problems. He states that due to fair and practical support provided by his wife in 2010 he commenced to collate and present his business records to his tax agent, Mr Ebert, so that he could prepare returns for the period of 1997 to 2010 for lodgement and assessment.
On 22 June 2012 the Official Receiver issued Bankruptcy Notice No. BN 3750 of 2012 in respect of Mr Evans’ debt to the DCT, pursuant to a judgment of the District Court of NSW in case no. 2011/00368211. The Bankruptcy Notice claimed the following debt:
1. Amount as per the attached final judgment/s or final order/s (note A) $249,018.11 2. Add legal costs (note B) $0.00 3. Add interest accrued since date of judgment/s or order/s (note C) $904.00 4. Subtotal (1 + 2 + 3) $249,922.11 5. Less payments made and/or credit allowed since judgment/s or order/s $1,100.94 6. TOTAL DEBT AMOUNT (4-5) $248,821.17
The Bankruptcy Notice was then served on Mr Evans on 3 July 2013. Mr Evans was required within 21 days of service of the Bankruptcy Notice to either:
a)Pay the DCT the amount of the debt claimed; or
b)Make arrangements to the DCT’s satisfaction for settlement of the debt.
In the Affidavit of Service of the Bankruptcy Notice the deponent, Mr Gabriellian, states at [3]:
3. Now produced and shown to me marked with the letters “A” and “B” respectively are a true copy of the said Bankruptcy Notice signed by the Official Receiver to which was annexed details of the interest claimed in the Bankruptcy Notice and a true copy of the judgment obtained in the District Court of New South Wales at Sydney on 7 June 2012.
The DCT relies on the following act of bankruptcy committed by Mr Evans within 6 months before the presentation of the Petition:
The respondent debtor failed to comply on or before 24 July 2012 with the requirements of the Bankruptcy Notice served on him on 3 July 2012 or to satisfy the Court that he had a counterclaim, set-off or cross demand equal to or more than the sum claimed in the bankruptcy notice, being a counter claim, set off or cross demand that he could not have set up in the actin which the judgment referred to in the bankruptcy notice was obtained.
On 14 January 2013 the Notice of Opposition was filed on behalf of Mr Evans. The Notice of Opposition indicates that Mr Evans intended to oppose the Petition on 11 separate grounds, which are set out at [9] above. I will address each ground below.
Grounds 1 & 11– Solvency
The onus of establishing solvency falls upon the debtor Re Poulson; Ex parte Hempenstall Bros Ltd (No 2) (1929) 1 ABC 54. The seminal utterance on solvency in bankruptcy proceedings was made by Barwick CJ in Sandell v Porter (1966) 115 CLR 666. However, since that decision, the relevant section of the Bankruptcy Act has changed, so that s.5 now states:
Interpretation
…
(2) A person is solvent if, and only if, the person is able to pay all the persons debts, as and when they become due and payable;
(3) A person who is not solvent is insolvent.
…
His Honour Barwick CJ at [15] in Sandell v Porter (supra) stated:
An essential step in making out that a payment is a preference within s.95 is to establish by evidence to the satisfaction of the Court that the payer was at the time of the payment insolvent. Insolvency is expressed in s.95 as an ability to pay debts as they fall due out of the debtor’s own money. But the debtor’s own money are not limited to his cash resources immediately available. They extent to monies that he can procure by realisation by sale or by mortgage or pledge of his assets within a relatively short time – relevant to the nature and the amount of debt and to the circumstances, including the nature of the business of the debtor. The conclusion of insolvency ought to be clear from the 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, utilising such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which in 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 be given in terms though no doubt experts may speak as to the likelihood of any debtor’s assets or capabilities yielding ready cash is sufficient time to meet the debts as they fall due.
The Court also notes the oral submissions made by Ms Fox on behalf of the DCT and paraphrased at [20]-[23] above. I accept those submissions in respect of Mr Evans’ claimed solvency.
In the Evans Affidavit of 22 January 2013 Mr Evans states at [22]-[23]:
22. I am a fully solvent person, and can, and always have paid all my debts as and when they fall due. Now that I know my total Tax debt, and as soon as the ATO makes a final decision on my sympathy and exceptional circumstances Penalty remission application, I wish to enter into the maximum Instalment arrangement possible as well as pay down the total with various lump sum payments from by(sic) Superannuation.
23. I have about $150,000.oo equity in my current home, and a $400,000.oo mortgage on it. I pay $850 per week rent on my retail shop at Gymea Shopping Centre. All my stock is on consignment. I have a small number of outstanding clock repairs and upgrade jobs. I have no other sources of income.
In the Evans Affidavit of 25 February 2013 Mr Evans states at [4]-[5]:
4. I say that I am currently solvent in the sense that I can pay all or (sic) my personal and business debts as and when they fall due.
5. Further I say that my total net assets currently exceed all of my total debts; including the total of the joint mortgage with my wife over my home unit, and including this current claimed debt by the ATO.
In Mr Boyle’s opening submissions he clearly states that Mr Evans had not prepared an affidavit of solvency for the purposes of the hearing (Transcript 17 July 2013, p.2.36). The relevant time for determining solvency under s.52(2)(a) is at the time of the hearing: Christou v Demandem Holdings Pty Ltd [2012] FCA 695 per Barker J at [104], citing Turco & Co Pty Ltd v Pendella Holdings Pty Ltd [2010] FCA 213 per Barker J at [58] where his Honour stated:
58. It is also accepted all round that the question of solvency must be assessed at the date of the hearing, though this does not mean that future events must necessarily be ignored: Jabb’s Excavations.
As stated above, the onus of proving that a debtor has assets sufficient to pay the debts within the meaning of s.52(2)(a) of the Bankruptcy Act lies with the debtor. However, it is not sufficient for the debtor to establish merely that they have assets exceeding the value of the amount of their liabilities, but not presently available or realisable: Re Lakatos; Ex parte Lakatos v Deputy Commissioner of Taxation (1996) 33 ATR 145 per Cooper J at 148; Stankiewicz v Plata [2000] FCA 1185 per Sackville, Drummond and Dowsett JJ at [26]-[32].
In Knudsen & Yates trading as The Hargreaves Practice, in the matter of Sanders v Sanders [2003] FCA 1079 per Bennett J, her Honour stated at [23]-[28]:
23 Mr Sanders relied upon the principle that bankruptcy is not a proceeding designed for the recovery of debts and that creditors should resort to other remedies. As noted by Hely J in Foyster (at [17]-[19]), that may be the case where, unlike here, a debtor is able to pay his debts but is recalcitrant and the debtor should then demonstrate that the petitioning creditor will be satisfied from the ordinary remedies such as execution and guarantee. Even if a debtor establishes solvency, the Court retains a discretion whether or not to dismiss the petition.
24 As pointed out by the Full Court in Trojan v Corporation of Hindmarsh [1987] FCA 276; (1987) 16 FCR 37 (`Trojan') at 48, a sterile demonstration of an ability to achieve payment which was not in reality likely to occur, may still result in a sequestration order. The Full Court noted in Trojan (at 46), that there is a difference between a situation where it is established that a petitioning creditor may pursue remedies of execution and garnishee against a debtor who had demonstrated ample assets and income available for the application of those remedies (see Sarina v Council of the Shire of Wollondilly(1980) 48 FLR 373) and the situation where there is no alternative remedy because the assets are insufficient to meet the debt relied upon in the petition. In the present case, the evidence is that an attempt at execution demonstrated this was not an alternative remedy and that the assets were insufficient. There is no question of guarantee.
25 Mr Sanders cited numerous authorities for the proposition that, if he establishes that he is able to pay his debts, a sequestration order should not be made. The applicant creditors dispute Mr Sanders' assertion that he can do so. Mr Sanders is not in the position of a person who simply declines to pay the debt. He asserted on a number of occasions that, if given time and the opportunity to pay by instalments, he wished to pay and would pay his debts, including the amount owed to the applicant creditors.
26 `Debts' as referred to in s 52(2)(a), by reason of s 5(1) includes liabilities. Katz J in International Alpaca Management Pty Ltd v Ensor [1999] FCA 72 discussed the distinction between `solvent' as defined in s 5(2) and `debt'. His Honour (at [8]-[10]) proceeded to deal with s 52(2)(a) on the basis that the debtor should prove an ability to pay his debts as and when they become due and payable. In this context only the reasonably immediate future is looked at (Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514 (`Hall')). Katz J proceeded on this basis because that was the way the parties in that case approached the matter and also because that was the approach of other Judges of this Court. His Honour also pointed out that the broader considerations so encompassed were of importance in considering the exercise of the discretion in s 52(2) to dismiss the petition. Katz J said (at [31]) that, in determining the debtor's ability to pay any debts becoming payable in the future, it is incumbent upon the debtor to satisfy the Court either that no debts will become payable in the immediate future or that, if they will, he will be able to pay them.
27 This was also the approach taken by Hely J in Foyster (at [19]) who expressed the view that s 52(2)(a) refers to a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations. Mr Diethelm relied on Hall (at 1527) for the proposition that the debts to be considered are not limited to those presently payable but also include those payable in the reasonably immediate future. He submitted that the question is not one of temporary lack of liquidity (Sandell v Porter [1966] HCA 28; (1966) 115 CLR 666 at 670-671). In Foyster (at [19]) Hely J concluded that s 52(2)(a) refers to `a state of affairs which requires account to be taken of debts which will fall due in the reasonably immediate future pursuant to existing obligations: Bank of Australasia v Hall [1907] HCA 78; (1907) 4 CLR 1514 at 1527-1528 as well as debts which are presently due and payable'.
28 In the present case, the assets under consideration are those reasonably available to meet the debts which, as Mr Sanders has made clear, do not include the two properties for the purposes of a payment now or in the immediate future. Mr Sanders has not established that his assets and income are sufficient to meet his debts.
Accordingly, the Court may decline to exercise its discretion to dismiss the Petition on the grounds of the debtor’s solvency if the debtor’s assets cannot be reached by any form of execution or garnishment, and the debtor will not otherwise pay the debt. In the matter before this Court Mr Evans, in the Evans Affidavit of 22 January at [23], indicates that he carries out his business in rented premises and that all of the stock within that shop is held on consignment. The asset in which he has some equity is a part ownership in a strata title unit which is owned jointly by him and his wife, and encumbered by a substantial mortgage. In the absence of evidence to the contrary, it would appear that any attempt at formal execution would be unlikely to succeed and as Mr Evans carries on his business as a watchmaker and sole trader, the avenue of garnishee order is not available.
On the material available to the Court I cannot be satisfied that Mr Evans, despite his insistence to the contrary, is solvent. Accordingly, these grounds of opposition cannot be sustained and should be dismissed.
Ground 2, 3, 4, 5, 6 & 9 – Failed Negotiations
In the Evans Affidavit of 22 January 2013 the details of Mr Evans’ attempts to come to a special arrangement with the ATO in respect of a Penalty Remission application are set out. A significant problem the Court has encountered in managing these proceedings is the actual purpose and function of Mr Evans’ affidavit evidence. I acknowledge that rules regulating affidavit form and content vary between courts in Australia, but an affidavit must be in a form acceptable to the court concerned. An affidavit that does not comply with the relevant court’s rules should be struck out. In very general terms, affidavits are used like oral evidence and the usual rules of evidence apply, being:
a)The text of the affidavit must be divided into number paragraphs, with each paragraph relating to a distinct matter;
b)The affidavit should be in the first person;
c)When conversation is being relayed, it must be in the form of direct speech;
d)The text should contain only the facts for which the deponent has first-hand knowledge; and
e)The facts related in the text should be relevant to the matters in issue. Statements of personal opinion, except expert opinion, should be avoided. Documents referred to in the affidavit should be attached and marked as annexures.
Mr Evans’ various affidavits were read into evidence unchallenged. However, as indicated below there are several issues intermingled throughout the affidavits and, in effect, none of the usual rules appear to have been observed when they were prepared. The affidavits cover pages indicated that they were prepared by Mr Evans’ solicitor, John Boyle of Boyle Associates, Solicitors & Barristers. Is not apparent whether Mr Boyle has had much or any input into the preparation of the Evans Affidavit of 22 January 2013 or the Evans Affidavit of 25 February 2013. The absence of oral submissions as to the approach being adopted on behalf of Mr Evans, and the simple reliance on the affidavit material unsupported by written submissions, provides no assistance to the Court in the comprehension of this material.
I now turn to the Penalty Remissions application raised by Mr Boyle which is not addressed in any systematic fashion, rather, is referred randomly throughout Mr Evans’ affidavits. Reference to this issue appear in [12], [16]-[17] and [22] of the Evans Affidavit of 22 January 2013. Mr Evans states in this respect:
12. I understood that there was a very good likely hood that due to my numerous personal and business set-backs over the years, and in recognising my extreme honesty and forthrightness in now seeking to play catch-up; that a partial or even full remission or waiver of penalties and interest might apply. There are numerous ATO guidelines, and internal administrative “Policies” for the application of sympathy Waivers, full remissions for “good Behaviour”, and/or “non claiming” of some or all penalties IN CERTAIN CIRCUMSTANCES. I say these should have been applied in my case.
…
16. Further factual history is as follows:
(i) On 14/12/2011 my Tax Agent made a formal application for full remission of the GIC charges and penalties and interest. The ATO requested more supporting documents and requested it be hand written by me personally.
(ii) On the 15th February 2012 my Tax Agent sent them a fax with a letter and my two page hand written list of my reasons for the request. I annex that hereto and make it with the letter “B”.
(iii) My Tax Agent subsequently made numerous telephone calls to the ATO pressing my claim for some special consideration in all my circumstances. My Tax Agent wrote a letter to the District Court explaining that Applications for Remission of Penalties had been made and that we were still awaiting the outcome. I annex that fax hereto and mark it with the letter “C”.
(iv) I understood from THAT action that the matter would have been stayed awaiting that final decision. No such final decision was ever made or advised to us. Mt Tax Agent assured me everything would be OK, in the mean time. THE ATO’s final DECISION WAS PENDING.
(v) As part of the ongoing negotiations with the ATO my Tax Agent submitted to the ATO’s Debt Collection Agent, at its request, a detailed Instalment Plan. I annexe hereto and mark “D” copy of its first two page. I will exhibit the numerous supporting documents (28 pages) and refer to them as Respondent’s Exhibit “1”. “RE1”
(vi) I am still making urgent arrangements for the said $60,000.oo to be withdrawn from my Superannuation accounts to make that promised settlement contributions. I expect it to be made available any day now.
17. I annexure hereto and mark “E” brief factual summary which I have personally dictated to my daughter to type, of the set back and troubles I have faced and overcome.
…
22. I am a fully solvent person, and can, and always have paid all my debts as and when they fall due. Now that I know my total Tax debt, and as soon as the ATO makes a final decision on my sympathy and exceptional circumstances Penalty remission application, I wish to enter into the maximum Instalment arrangement possible as well as pay down the total with various lump sum payments from my Superannuation.
In the Evans Affidavit of 25 February 2013 the issue of Penalty Remission is addressed at [8], [10] and [15]-[16] where Mr Evans states:
8. This Bankruptcy proceeding has totally caught me by surprise. Both my self and Tax Agent, Alex Ebert Accounting, (who was negotiating all this for me,) were very optimistic that upon the Lodgement of over 10 years of Tax Returns all at once, that at least some penalties and interest waiver or remissions would be granted. Due to my forthright honesty in coming forward and lodging all outstanding returns from 1997 to 2012 all inclusive, and my demonstrated family and business history of misadventure and disasters.
…
10. The Solicitor for the Applicant here, has been advising My Solicitor that the ATO will only accept the Grand Total of Tax owing in full and final settlement. He also advises that there can be no such negotiations or settlement whilst there are any outstanding Tax Returns. Please refer to the letters at annexure “A” hereto.
…
15. I have only just received today a Reply from Mr Bavin for the ATO being his letter dated 22/02/2012. My Solicitor and tax Agent are only now just considering that letter.
16. I say that it is unjust , unfair and unreasonable for the Applicant to be demanding “PAYMENT IN FULL OR ALL TAX DUE PLUS PENALTIES” in circumstances where neither its Solicitors nor the ATO itself can advise the current GRAND total figure owing.
Hunt & Hunt sent correspondence in response to this issue to Mr Evans by way of letter dated 22 February 2012. A copy of this letter appears at Annexure “A” to the Ebert Affidavit of 25 February. A key extract therein reads:
We refer to your latest correspondence dated 21 February 2013.
You ask whether there is any “possibility of a reasonable counter offer being made” If by that you are asking whether the ATO will accept less than full payment then mu current instructions are that they will not.
If you are asking whether an offer put by your client will be considered, all offers received are put to my clients for instructions but to date, as you are aware, offers put by your client have been rejected.
“Payment in full” refers to the amount contained in the affidavit sworn in support of the creditors petition. That is the sum of $273,339.40. It has always been that amount
In the Boyle Affidavit of 26 April appearing at Annexure “A” is a letter from the Australian Taxation Office dated 14 March 2013 and addressed to Mr Boyle which states:
PROPOSAL TO SETTLE/COMPROMISE TAX DEBT FOR MR PETER EVANS
Thank you for your letter received 12 March 2013 requesting we accept less than the full amount owing.
We have reviewed your proposal and the offer has been rejected in accordance with Law Administration Practice Statement PS LA 2011/3.
The reasons for our decision are based on policy as follows:
The ATO will not accept compromise proposals that offer less than the tax debtor’s total net asset in full satisfaction of the taxation debt.
Any compromise offer will be expected to consist of no less than the full value of the whole of the tax debtor’s present property.
Mr Evans has joint equity in his home which could be used to borrow against. Mr Evans has stock valued at approximately $30,000 plus trade equipment used to run his business. Mr Evans has superannuation in excess of $60,000. Mr Evans has access to $180,000 via loans.
The ATO will not accept compromise proposals unless there is a benefit in doing so over and above that which would flow from taking actions under either the Bankruptcy Act or the Corporations Act.
ATO has already committed itself to expenses in collecting these debts. Current policy and practice dictates that the only acceptable offer at this stage is full payment.
The ATO will take into account the tax debtor’s compliance history.
The ATO will not enter into a compromise agreement where a tax debtor has demonstrated a lack of candour, provided misleading or incomplete information, declined to provide any information, or failed to enter into or honour reasonable agreements to pay their debts without reasonable cause.
The behaviour of tax debtors who regularly lodge their taxation returns late and/or pay their taxation debts late or not at all excludes them from compromise agreements.
…
In the Boyle Affidavit of 26 April appearing at Annexure “C” is a letter from Hunt & Hunt to Boyle Associates dated 15 April which states:
We refer to your letter of 11 April 2013.
I do not understand the first paragraph of your letter in respect to our client’s response to your client’s offer contained in his letter dated 27 February 2013. My client’s letter to you of 14 March 2013 makes it clear that the offer was rejected. My client is under no obligation to accept less then (sic) the debt owing to it.
…
The letter continues:
Your client has filed a Notice of Opposition. The grounds contained in that Notice are numerous but in our view, mostly not proper grounds for opposing a creditor’s petition. For example, our client is under no obligation to accept a payment arrangement, nor is it under any obligation to remit penalties and GIC. It will in some circumstances do so, but your client’s application for remission was refused after been given consideration by our client in accordance with it published guidelines for such applications.
The correspondence above clearly states that the Penalty Remission application that was advanced as a ground of opposition to the Petition has been rejected by the ATO. This has been clearly set out in the correspondence from the ATO and their legal representatives, Hunt & Hunt. The reason for that rejection has been clearly stated and, accordingly, the grounds challenging that decision pleaded in the Notice of Opposition cannot be sustained and should be dismissed.
Grounds 7 & 8– Additional amount claimed
In the evidence before the Court there are numerous references to the amount of $24,518.23 appearing in the Petition at Part 1,1(c) which states:
Plus an amount of $24,518.23 being for additional debt due and payable as at 24 July 2012by the respondent debtor pursuant to the Taxation Administration Act 1953;
The source of this amount is questioned and raised in Grounds 7 and 8 of the Notice of Opposition, and in the Evans Affidavit of 25 February at [31], the Ebert Affidavit of 25 February at [10] and the Boyle Affidavit of 26 April at [5], [10] and [18].
Correspondence in respect of this additional amount sent by the DCT to Mr Evans appears in the Boyle Affidavit of 26 April 2013 at Annexure “C” where the DCT’s legal representatives state:
…The amount owing by your client will change as a result of a variety factors including but not limited to any credits applied to the account, payments made, GIC and penalties charged against your client’s account, further liabilities incurred as a result of the lodgement of further returns or business activity statements.
There is no evidence before the Court indicating what provision or provisions of the Taxation Administration Act 1953 (Cth) was or were relied on for the calculation of the additional amount added to the Petition. In very general terms the Taxation Administration Act 1953 (Cth), in part, provides for the levy of general interest charges for unpaid income tax. The extra charge may also represent additional amounts that have accrued since the issue of the Bankruptcy Notice including further assessments made after that date.
Regardless of the explanation, I agree with the submissions made Ms Fox and reproduced at [21] above, where she refers the Court to the decision in Graham (supra) at [34] where her Honour stated:
34. … I note that in Re Mendonca; Ex parte Commissioner of Taxation (1969) 15 FLR 256 Gibbs J pointed out (at 260) that if the creditor was entitled to present a petition based on the statutory amount, the erroneous inclusion in the petition of an additional debt that was not liquidated or payable immediately or at a certain future time as at the date of the act of bankruptcy did not render the petition invalid.
It is clear the amount in dispute is not contained in the Bankruptcy Notice at the date of its service or the act bankruptcy on 24 July 2012, but has subsequently been added to the Petition issued on 13 December 2012.
I also accept Ms Fox’s submission in respect of the decision in Capital Finance Australia Pty Ltd v Nathan (supra) at [73] (which is reproduced above at [22]) that there is nothing before the Court to warrant going behind the judgment debt. This disputed amount has nothing to do with the judgment debt as it was added after the judgment of the District Court that founds the Bankruptcy Notice and Petition.
Ground 10 – Invalid Petition
Ground 10 of the Notice of Opposition claims that the Petition is invalid on the basis the debt is overstated and this is due to the incorrect rate of interest being charged. The “Schedule of Post judgment interest calculation” states that the statute provision under which the post-judgment interest is being claimed is under the provision of s.101 of the Civil Procedure Act 2005 (NSW). Section 101 states:
Part 7 – Judgments and Orders
Division 3 – Payment of Interest
101 Interest after judgment
(1) Unless the court orders otherwise, interest is payable on so much of the amount of a judgment (exclusive of any order for costs) as is from time to time unpaid.
(2) Interest under subsection (1) is to be calculated, at the prescribed rate or at such other rate as the court may order, as from:
(a) the date on which the judgment takes effect, or
(b) such later date as the court may order.
…
(7) In this section, a reference to the
“prescribed rate” of interest is a reference to the rate of interest prescribed by the uniform rules for the purposes of this section.The Uniform Civil Procedure Rules 2005 (NSW), at reg.36.7 defines the payment of interest as:
UNIFORM CIVIL PROCEDURE RULES 2005 - REG 36.7
Payment of interest
36.7 Payment of interest
(cf SCR Part 40, rule 7)
(1) The prescribed rate at which interest is payable under section 101 of the Civil Procedure Act 2005 is:
(a) in respect of the period from 1 January to 30 June in any year-the rate that is 6% above the cash rate last published by the Reserve Bank of Australia before that period commenced, and
(b) in respect of the period from 1 July to 31 December in any year-the rate that is 6% above the cash rate last published by the Reserve Bank of Australia before that period commenced.
(2) The Local Court may not order the payment of interest up to judgment in any proceedings in which the amount claimed is less than $1,000.
As identified in r.39.06 of the Federal Court Rules 2011 (Cth), post-judgment interest (see s.52 of the Federal Court of Australia Act 1976 (Cth)) is set out in the following table:
Effective dates RBA cash target as at 1 Jan or 1 Jul (Per cent) Pre-judgment interest – Cash rate plus 4% (Per cent) Post judgment interest – cash rate plus 6% (Per cent) 1 July 2011 to 31 Dec 2011 4.75 8.75 10.75 1 Jan 2012 to 30 Jun 2012 4.25 8.25 10.25 1 July 2012 to 21 Dec 2012 3.5 7.5 9.5 This is mirrored in the NSW Legislation set out at [56]-[57] above and any calculation based on either the federal or state rates of interest would be the same.
As the relevant dates falls within the period of 1 January to 30 June 2012, the relevant rate of interest is 10.25% which has been correctly stated in the calculation attached to the Bankruptcy Notice. Mr Ebert appears to be relying upon the wrong dates, as demonstrated in the above table. Accordingly, any argument in respect of incorrect calculation of interest cannot be sustained and should be dismissed.
The allegation that the bankruptcy notice was not based upon a certified copy of the relevant judgment/order is not supported by the evidence contained in the Affidavit of Service of the Bankruptcy Notice sworn by Andre Gabriellian on 7 July 2012 and filed in these proceedings with the Petition. Paragraph 3 of the Affidavit makes direct reference to the judgment. That paragraph is set in its entirety at [29] above. Attached to that affidavit and marked as Exhibit “B” is a copy of the judgment/order issued by the District Court of NSW, Sydney Registry, in Case No. 2011/00368211. That order is signed by the Principal Registrar, dated 7 June 2012 and carries the seal of the District Court of NSW. No objection was raised to that affidavit during the proceedings nor is there any other affidavit evidence challenging the validity of the Bankruptcy Notice. In the circumstances I am satisfied that this ground of objection cannot be sustained and should be dismissed.
Conclusion
Consequently, none of the grounds pleaded in the Notice of Opposition can be sustained and it should be dismissed. However, as noted at [1]-[4] of these reasons above, the Petition has lapsed and must be dismissed.
I certify that the preceding sixty (60) paragraphs are a true copy of the reasons for judgment of Judge Lloyd-Jones
Associate:
Date: 14 February 2014
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