Deputy Commissioner of Taxation v Fayad
[2024] FedCFamC2G 625
•17 July 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Deputy Commissioner of Taxation v Fayad [2024] FedCFamC2G 625
File number(s): SYG 49 of 2022 Judgment of: JUDGE MANOUSARIDIS Date of judgment: 17 July 2024 Catchwords: BANKRUPTCY - Application for review of sequestration order made by Registrar – whether bankruptcy notice was served on debtor – bankruptcy notice served – whether hearing of creditor’s petition should be adjourned pending determination of debtor’s application before the Administrative Appeals Tribunal seeking review of rejection of debtor’s objection to amended notices of assessment – application for review dismissed and sequestration order affirmed. Legislation: Taxation Administration Act 1953 (Cth) ss 8AAB, 14ZY, 14ZZ(1)(a)(i), Sch 1 ss 280-100, 350-10(2), Pt IVC
Federal Circuit and Family Court of Australia Act 2021 (Cth) s 256
Bankruptcy Act 1966 (Cth) ss 33(1)(a), 40(1)(g), 43, 47, 52, 54
Income Tax Assessment Act 1936 (Cth) ss 161, 170, 173, 174, 175A
Administrative Appeals Tribunal Act 1975 (Cth) s 37
Acts Interpretation Act 1901 (Cth) s 28A
Corporations Act 2001 (Cth) s 459
Income Tax Assessment Act 1997 (Cth) ss 5-5, 5-15, 255-1, 255-5, 293-15, 293-65, 293-70, 293-72
Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) rr 2.02(3), 4.02
Bankruptcy Regulations 2021 (Cth) regs 9(1), 102
Cases cited: Ahern v The Deputy Commissioner of Taxation (QLD) [1987] FCA 312
Bechara v Bates [2021] FCAFC 34
Civic Video Pty Ltd v Warburton [2013] FCA 934
Conlan v Mladenis [2007] FCA 1129
Culleton v Balwyn Nominees Pty Ltd [2017] FCAFC 8
Deputy Commissioner of Taxation v Bayconnections Property [2012] FCA 363
Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41
Deputy Commissioner of Taxation v Mei Mei Yan (aka Quinnie Wong) [1998] FCA 783
Fancourt v Mercantile Credits Ltd [1983] HCA 25
Repatriation Commission v Gordon [1990] FCA 619
Rotstein & Associates v Slaveski [2010] FCA 493
Division: General Number of paragraphs: 86 Date of hearing: 19 April 2024 Place: Sydney Counsel for the Applicant: Mr D Olthof Solicitor for the Applicant: Craddock Murray Neumann Counsel for the Respondent: Mr T Cleary Solicitor for the Respondent: Pope & Spinks Solicitors Counsel for the Trustee: Ms S Tong Solicitor for the Trustee: Mills Oakley Lawyers Counsel for the Supporting Creditors: Mr J Burnett ORDERS
SYG 49 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
IN THE MATTER OF SAM FAYAD, BANKRUPT
BETWEEN: DEPUTY COMMISSIONER OF TAXATION
Applicant
AND: SAM FAYAD
Respondent
ORDER MADE BY:
JUDGE MANOUSARIDIS
DATE OF ORDER:
17 JULY 2024
THE COURT ORDERS THAT:
1.The application for review of the sequestration made against the estate of the respondent by the Registrar on 14 September 2023 is dismissed.
2.The sequestration and other orders made by the Registrar on 14 September 2023 are affirmed.
3.The applicant’s costs be paid out of the estate of the respondent and have the same priority as the costs of the petition.
Note: The form of the order is subject to the entry in the Court’s records.
Note: The Court may vary or set aside a judgment or order to remedy minor typographical or grammatical errors (r 17.05(2)(g) Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 17.05 Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
The respondent, Mr Fayad, applies for the review of a sequestration order a Registrar of this Court made against Mr Fayad’s estate on 14 September 2023. The Registrar made the sequestration order on the presentation by the Deputy Commissioner of Taxation (DCT) of a third amended creditor’s petition in which the DCT claims Mr Fayad owes the DCT the debts listed in that petition, which then totalled $41,204,024.19.
The act of bankruptcy on which the DCT relies is Mr Fayad’s alleged failure to comply with the requirements of a bankruptcy notice (Bankruptcy Notice) that was issued on the application of the initial petitioning creditor (BGPPL) on 17 November 2021. The Bankruptcy Notice demanded that Mr Fayad pay to BGPPL $9,978.620.39, which is the amount of a judgment BGPPL recovered from Mr Fayad in the Supreme Court of the New South Wales on 15 November 2021.
The debts listed in the third amended creditor’s petition principally consist of income tax the Commissioner of Taxation (Commissioner) assessed Mr Fayad is liable to pay for each of the years ended 30 June 2002 and 2003, and 2006-2016, together with amounts for “general interest charges” (GIC) and “shortfall interest charges” (SIC) payable in relation to some or all of the assessed income tax.[1] (I will refer to the years for which the Commissioner assessed Mr Fayad for income tax as the “Income Tax Periods”.)
[1] GIC is payable under the provisions identified in s 8AAB of the Taxation Administration Act 1953 (Cth) (TAA53). SIC is payable under s 280-100 of Schedule 1 (Schedule 1) to the TAA53.
The amounts of income tax, and the GIC and SIC, for the Income Tax Periods other than 2015 and 2016 are stated in amended notices of assessment the Commissioner issued in April 2017; and the income tax for each of the 2015 and 2016 Income Tax Periods is stated in notices of assessment the Commissioner issued on 16 November 2016 and 18 March 2018 respectively. The notices of assessment and the amended notices of assessment were issued pursuant to s 174 of the Income Tax Assessment Act 1936 (Cth) (ITAA36).[2] The debts stated in the third amended creditor’s petition also include Division 293 tax, and administrative and director’s penalties.
[2] Section 173 of the ITAA36 provides that, except as otherwise provided, “every amended assessment shall be an assessment for all the purposes of” the ITAA36.
There is no dispute that Mr Fayad owes the debts listed in the third amended creditor’s petition.[3] Mr Fayad, however, has challenged the amended notices of assessment. Mr Fayad has done so, first, by lodging on 6 June 2017, pursuant to s 175A of the Income Tax Assessment Act 1936 (Cth) (ITAA36), a notice of objection; and, second, after the Commissioner disallowed Mr Fayad’s objections, by applying to the Administrative Appeals Tribunal (AAT), pursuant to s 14ZZ(1)(a)(i) of the Taxation Administration Act 1953 (Cth) (TAA53), for review of the Commissioner’s decision to disallow Mr Fayad’s objections. Mr Fayad’s application for review before the AAT has not been determined.
[3] Under s 5-5(2) of the Income Tax Assessment Act 1997 (Cth) (ITAA97), income tax is due and payable if the Commissioner makes an assessment of a person’s tax for the year. Under s 5-5(7) ITAA97, if the Commissioner amends an assessment for income tax, any extra income tax resulting from the amendment is due and payable 21 days after the Commissioner gives the tax payer notice of the amended assessment. Under s 255-5 of Schedule 1, “a tax-related liability” (which is defined in s 255-1 of Schedule 1 to mean “a pecuniary liability to the Commonwealth arising under a taxation law”) “is a debt due to the Commonwealth”, and “is payable to the Commissioner”.
Mr Fayad advances two broad claims in support of his application for review of the Registrar’s sequestration order. The first is that the evidence does not support a finding that he committed an act of bankruptcy. The basis of that claim is the contention that Mr Fayad was not served with the Bankruptcy Notice. Mr Fayad’s second claim is that the Court should decline to make (that is, decline to affirm the Registrar’s making of) a sequestration order, but should instead adjourn the hearing of the creditor’s petition pending the determination of Mr Fayad’s application for review before the AAT of the Commissioner’s disallowance of Mr Fayad’s objection to the assessments of income tax. Mr Fayad submits he has valid and arguable grounds for review, and there is evidence that, if Mr Fayad succeeds on his application for review, he will be solvent.
At the hearing of Mr Fayad’s application for review, it became apparent to me that the necessary consequence of accepting Mr Fayad’s claim that no sequestration order should be made, but that the hearing of the creditor’s petition be adjourned pending the determination of his application for review to the AAT, would be the immediate lapsing of the third amended creditor’s petition; and that would be because of the operation of s 52(4) of the Bankruptcy Act 1966 (Cth) (Bankruptcy Act). Paragraph (a) of s 52(4) of the Bankruptcy Act provides that a “creditor’s petition lapses at the expiration of . . . the period of 12 months commencing on the date of presentation of the petition”. That is subject to paragraph 54(2)(b) of the Bankruptcy Act, which provides that if the Court makes an order under s 52(5) of the Bankruptcy Act, a “creditor’s petition lapses at the expiration of . . . the period fixed by the order”. Subsection 52(5) of the Bankruptcy Act provides that, in the circumstances set out in that subsection, the Court may “order that the period at the expiration of which the petition will lapse be such period, being a period exceeding 12 months and not exceeding 24 months, commencing on the date of presentation of the petition as is specified in the order”. The creditor’s petition on which the DCT relies was initially filed on 14 January 2022 and, on 29 November 2022, a Registrar made an order pursuant to s 52(5) of the Bankruptcy Act that the “life of the petition is extended to 24 months from the date of presentation”. Thus, if I were to set aside the sequestration order and purport to adjourn the hearing of the creditor’s petition, the creditor’s petition will have lapsed on 14 January 2024.
After some discussion with the parties’ legal representatives, I indicated that I would treat Mr Fayad’s application for an adjournment of the creditor’s petition as an application for an adjournment of Mr Fayad’s application for review. Towards the end of the hearing, however, counsel for Mr Fayad submitted that if an adjournment ought to be granted, I ought to disregard the fact that the creditor’s petition would expire, particularly given that the DCT is the third applicant creditor.[4] I have decided to proceed on this basis, which means that it would not be appropriate for me to deal with the application for the adjournment of the hearing of the creditor’s petition as an application for the adjournment of the hearing of Mr Fayad’s application for review. In these reasons for judgment, therefore, I consider two principal questions. The first is whether the Bankruptcy Notice was served on Mr Fayad and, therefore, whether Mr Fayad committed an act of bankruptcy. The second is whether I should adjourn the hearing of the creditor’s petition.
[4] T102.45
Before I consider these questions, it will be convenient, first, to provide a brief history of the proceeding; second, to describe the debts on which the DCT relied when applying to be substituted as a creditor, and on which the DCT now relies in applying for a sequestration order; third, to set out the nature of the jurisdiction the Court exercises on applications for review of a Registrar’s orders; and, fourth, to identify the evidence that was read at the hearing of the application for review.
PROCEDURAL HISTORY
On 25 October 2022 Mr Fayad filed a notice stating grounds of opposition to the creditor’s petition, in which he stated two grounds. The first is that Mr Fayad committed no act of bankruptcy. The basis of that ground is the contention that the Bankruptcy Notice was not served on Mr Fayad. The second ground on which Mr Fayad relies is that he is able to pay his debts.
On 27 October 2022 a supporting creditor (NB) was granted leave to file an application to be substituted as applicant on the creditor’s petition. On 29 November 2022 NB was substituted petitioning creditor, and the hearing of the creditor’s petition was adjourned to 15 December 2022. The hearing of the creditor’s petition was further adjourned on 15 December 2022, then on 23 March 2023, it was adjourned to 4 May 2023. On that day, leave was granted to NB to withdraw as the applicant, and leave was granted to three supporting creditors to be substituted as petitioning creditors; and on 29 June 2023, one of the three creditors was substituted as petitioning creditor.
On 17 August 2023 the Registrar ordered that the DCT be substituted as the petitioning creditor. In making that order, the Registrar appears to have accepted the matters deposed to by Mr Kristjansson in an affidavit he made on 15 August 2023. Mr Kristjansson is an Australian Public Servant who is employed in the debt section of the Australian Taxation Office (ATO).
THE DEBTS IDENTIFIED IN THE THIRD AMENDED CREDITOR’S PETITION
The debts listed in the third amended creditor’s petition are based on the matters to which Mr Kristjansson deposes in his affidavit. These consist of the following:
(a)The Commissioner assessed Mr Fayad for income tax for each of the Income Tax Periods for 2002 and 2003, and 2006-2016. The Commissioner assessed Mr Fayad for income tax for the Income Tax Periods of 2015 and 2016 pursuant to s 166 of the ITAA36, and for income tax for the other Income Tax Periods pursuant to s 170 of the ITAA36. The income tax for which the Commissioner assessed Mr Fayad for each of the Income Tax Periods are stated in amended notices of assessment (for each of the Income Tax Periods other than 2015 and 2016) and in notices of assessment (for each of the 2015 and 2016 Income Tax Periods) issued pursuant to s 174 of the ITAA36.[5]
(b)Mr Fayad failed to pay the amount due under each notice of amended assessment and notice of assessment.[6] The amounts of assessed income tax therefore attracted a liability to pay GIC, being the amount payable under the provisions identified in s 8AAB of the TAA53, the relevant provision being s 5-15 of the ITAA97.[7]
(c)On 31 July 2023 Mr Kristjansson accessed the account records held on the ATO computer systems in relation to the income tax and GIC for which Mr Fayad is liable, and these revealed that Mr Fayad is indebted to the Commonwealth of Australia in the amount of $26,044,860.84.[8] The DCT issued a document titled “Certificate under section 350-10(2) in Schedule 1 to the Taxation Administration Act 1953” certifying that, as at 14 August 2023, Mr Fayad’s liability for income tax and GIC was $26,153,961.40.[9] (I will refer to this certificate and to all other certificates issued pursuant to s 350-10(2) of the TAA53 as a 350 Certificate or as 350 Certificates.)
(d)The additional amounts of income tax for which Mr Fayad was assessed, and which were stated in the amended notices of assessment, attracted the SIC provided for by s 280-100 of Schedule 1.[10] The amount of the SIC was stated in each of the amended notices of assessment and, for that reason, notice of the amounts of SIC was given as required by s 280-110 of Schedule 1.[11] The total amount of SIC, as at 31 July 2023, was $4,511,351.65;[12] and a 350 Certificate was issued certifying that, as at 14 August 2023, the SIC that had accrued on the additional tax for which Mr Fayad has been assessed totalled $4,530,249.44.[13]
(e)The Commissioner assessed Mr Fayad for tax under s 293-15 of the ITAA97 (Div 293 tax) for each of the Income Tax Periods of 2013, 2015, and 2016. Pursuant to s 155-10 of Schedule 1, the Commissioner gave Mr Fayad notice of each of the assessments for Div 293 tax, as a consequence of which, under s 293-65 and s 293-70 of the ITAA97, each of the Div 293 taxes became due and payable 21 days after the Commissioner gave notice to Mr Fayad of the assessments. Given Mr Fayad did not pay the Div 293 taxes, those taxes attracted GIC.[14] The Div 293 taxes, together with GIC totalled $11,850.91 as at 31 June 2023.[15] A 350 Certificate was issued in respect of Mr Fayad’s liability for Div 293 tax and GIC in the amount of $11,900.55, as at 14 August 2023.[16]
(f)Pursuant to s 298-30 of Schedule 1, Mr Fayad was assessed for administrative penalties for which he became liable under s 284-75 of Schedule 1 for each of the Income Tax Periods of 2002, 2003, and 2006-2014 (Administrative Penalties).[17] The Commissioner gave Mr Fayad notice of the Administrative Penalties, as required by s 298-10 of Schedule 1.[18] Mr Fayad failed to pay the Administrative Penalties, as a consequence of which they attracted a GIC, being the amount payable under the provisions identified in s 8AAB of the TAA53, the relevant provision being s 298-25 of the Schedule 1.[19] As at 31 July 2013 the Administrative Penalties and GIC on those penalties totalled $16,621,726.13;[20] and a 350 Certificate was issued in respect of Mr Fayad’s liability for Administrative Penalties and GIC on those penalties in the amount of $16,691,353.64 as at 14 August 2023.[21]
(g)Mr Fayad did not, by the dates required by s 161(1) of the ITAA36, give to the Commissioner returns of income tax for the Income Tax Periods of 2015 and 2016. Mr Fayad consequently became liable to the administrative penalty provided for by s 286-75 of Schedule 1 (Failure to Lodge Penalties).[22] A DCT gave Mr Fayad notice of the Failure to Lodge Penalties, as required by s 298-10 of Schedule 1.[23] Mr Fayad failed to pay the Administrative Penalties, as a consequence of which they attracted a GIC, being the amount payable under the provisions identified in s 8AAB of the TAA53, the relevant provision being s 298-25 of the Schedule 1.[24] As at 31 July 2013 the Administrative Penalties and GIC on those penalties totalled $4,388.10,[25] and a 350 Certificate was issued in respect of Mr Fayad’s liability for Failure to Lodge Penalties and GIC on those penalties in the amount of $4,406.48 as at 14 August 2023.[26]
(h)Notices were issued to Mr Fayad pursuant to s 269-25 of Schedule 1 to pay penalties (Director’s Penalties) equal to the amounts of tax for which a number of companies of Mr Fayad was a director was liable to pay, those companies being ROI Croydon 88 Pty Ltd (ROI Croydon), ACN603 090 660 Pty Ltd (James Estate Winery), and Tallahon No 1 Pty Ltd (Tallahon). 350 Certificates were issued in relation to the Director’s liabilities, certifying that, as at 14 August 2023, Mr Fayad’s Director’s Penalties in relation to ROI Croydon, James Estate Winery, and Tallahon were $12,362.00, $140,176.78, and $25,251.88 respectively.[27]
[5] Affidavit M Kristjansson 15.08.2023, [8]-[10]
[6] Affidavit M Kristjansson 15.08.2023, [11]
[7] Affidavit M Kristjansson 15.08.2023, [11]
[8] Affidavit M Kristjansson 15.08.2023, [12]
[9] Affidavit M Kristjansson 15.08.2023, [13]. Subsection 350-10(3) of Schedule 1 provides that a certificate issued under s 350-10(2) of Schedule 1 is “prima facie evidence” the amount stated in the certificate “is payable from that time”, and that “the particulars stated in the certificate are correct”.
[10] Affidavit M Kristjansson 15.08.2023, [14]
[11] Affidavit M Kristjansson 15.08.2023, [15]
[12] Affidavit M Kristjansson 15.08.2023, [17]
[13] Affidavit M Kristjansson 15.08.2023, [18]
[14] Being the amount payable under the provisions identified in s 8AAB of the TAA53, the relevant provision being s 293-72 of the ITAA97.
[15] Affidavit M Kristjansson 15.08.2023, [23]
[16] Affidavit M Kristjansson 15.08.2023, [24]
[17] Affidavit M Kristjansson 15.08.2023, [25]
[18] Affidavit M Kristjansson 15.08.2023, [26]
[19] Affidavit M Kristjansson 15.08.2023, [28]
[20] Affidavit M Kristjansson 15.08.2023, [29]
[21] Affidavit M Kristjansson 15.08.2023, [30]
[22] Affidavit M Kristjansson 15.08.2023, [33]
[23] Affidavit M Kristjansson 15.08.2023, [34]
[24] Affidavit M Kristjansson 15.08.2023, [36]
[25] Affidavit M Kristjansson 15.08.2023, [37]
[26] Affidavit M Kristjansson 15.08.2023, [38]
[27] Affidavit M Kristjansson 15.08.2023, [61], [88], and [101]
THE APPLICATION FOR REVIEW - PRINCIPLES
Mr Fayad has applied for a review of the Registrar’s orders under s 256(1) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (FCFC Act) which, together with s 256(2), provides:
(1)A party to proceedings in which a delegate has exercised any of the powers of the Federal Circuit and Family Court of Australia (Division 2) under section 254 may:
(a) within the time prescribed by the Rules of Court; or
(b) within any further time allowed in accordance with the Rules of Court;
apply to the Court for review of that exercise of power.
(2)The Federal Circuit and Family Court of Australia (Division 2) may, on application under subsection (1) or on its own initiative, review an exercise of power by a delegate under section 254, and may make any order or orders it thinks fit in relation to the matter in respect of which the power was exercised.
The time for applying for review has been prescribed by r 2.02(3) of the Bankruptcy Rules, and it is within 21 days after the day on which the power was exercised.
A review under s 256(2) of the FCFC Act is a “hearing de novo”. That means that an: [28]
applicant for review under [s 256(2)] is under no obligation to demonstrate error on the part of the Registrar, and does not need to establish that the Registrar’s exercise of discretion miscarried in the sense described in House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505: Pattison v Hadjimouratis [2006] FCAFC 153 at [153]- [154].
[28] Conlan v Mladenis [2007] FCA 1129, at [5] (Sundberg J)
Further:[29]
The hearing (or rehearing) of the creditor’s petition is not prosecuted by the debtor (applicant for review) but by the creditor in the proceeding in which the registrar’s order was made.
The application for review is a demand that the claim for relief (the sequestration order) be heard by a judge.
The onus is upon the creditor to prosecute its petition. The only onus of the debtor/bankrupt against whose estate a sequestration order has been made is to prove either solvency or any other sufficient cause under s 52(2) of the Bankruptcy Act 1966 (Cth).
[29] Bechara v Bates [2021] FCAFC 34, at [27]
EVIDENCE AND COURSE OF HEARING OF APPLICATION FOR REVIEW
The parties relied on a number of affidavits and documents. First, the DCT read the affidavits on which the DCT relies to prove the matters prescribed by s 43 and s 52(1) of the Bankruptcy Act. These included affidavits Mr Robert Vassallo made on 5 January 2022 and 6 December 2023 in which he deposes to matters relevant to what is said to be the service of the Bankruptcy Notice.
Second, I read two affidavits made by Mr Le, a director of three supporting creditors (Supporting Creditors), these being BECL Strategy Holding Ltd (BSH), BECL View Holding Ltd (BVH), and Diverse Market Ltd (DM). In his affidavit made on 16 May 2023 Mr Le deposes that as at 3 May 2023 Mr Fayad owed BSH, BVH, and DM $1,221,731,237.10, $144,980,726.35, and $97,800,147.58 respectively. Mr Le deposes that Mr Fayad owes these amounts pursuant to demands made under guarantees Mr Fayad granted to secure loans the Supporting Creditors had made to PMR Funding Pty Ltd. In his affidavit made on 3 August 2023 Mr Le says, among other things, that as at 3 August 2023 Mr Fayad had not met the demands to which Mr Le refers in his first affidavit.
Third, the Supporting Creditors sought to read an affidavit Mr Le made on 17 April 2024. Counsel for Mr Fayad objected to my reading that affidavit because of late service. Counsel for the Supporting Creditors informed me that the affidavit goes no further than updating the evidence Mr Le gives in his first two affidavits. Counsel for the Secured Creditors further informed me that the Supporting Creditors commenced proceedings in the Supreme Court of New South Wales on 24 October 2022 against Mr Fayad and other companies; these defendants were served on 18 January 2023; the defendants filed a defence on 17 February 2023; on 11 July 2023 the defences were struck out; the Supporting Creditors applied for summary judgment which was set down for hearing on 23 and 24 October 2023; but that hearing has been aborted due to Mr Fayad having been made bankrupt on 23 September 2023. I did not read Mr Le’s affidavit of 17 April 2024.
Fourth, Mr Fayad read two affidavits made by Mr Fayad’s solicitor, Mr Pope, one on 14 September 2023, and the other on 5 October 2023. In his second affidavit, Mr Pope deposes to Mr Fayad having filed an application with the AAT “in respect of the Australian Taxation Office’s decision concerning [Mr Fayad’s] income tax assessments”.[30] That is a reference to the “objection decision” the Commissioner made on about 28 July 2023 pursuant to s 14ZY of the TAA53 disallowing the objections Mr Fayad lodged on 6 June 2017 to the amended assessments, to penalty assessments, and to the DCT’s refusal not to remit SIC. Mr Fayad applied to the Tribunal pursuant to s 14ZZ of the TAA53. Mr Fayad has not, however, lodged objections to the amounts of income tax and GIC for which Mr Fayad was assessed under notices of assessment the Commissioner issued for the 2015 and 2016 Income Tax Periods, these, being $159,098.48 and $2,513,259.40 respectively.[31]
[30] Affidavit J Pope 05.10.2023, [2]
[31] Affidavit M Kristjansson 15.08.2023, [12]
Fifth, subject to a number of rulings on evidence, I read the affidavits Mr Fayad made on 28 September 2023, 7 December 2023, and 14 February 2024.
Sixth, Mr Fayad also sought to read an affidavit he made on 17 April 2024, in which he deposes to the following matters:
(a)The current status of the proceeding before the AAT (AAT proceeding). The Commissioner had not yet produced the documents (T Documents) the Commissioner is required to produce under s 37 of the Administrative Appeals Tribunal Act 1975 (Cth). Further, the Commissioner’s lawyers have taken the position that Mr Fayad does not have standing to maintain his application before the AAT because of the sequestration order the Registrar made on 14 September 2023.
(b)If Mr Fayad succeeds in his application to the Tribunal he will be able to establish he is solvent, and that a sequestration order should not have been made against him on the basis of taxation liabilities “that were inflated”.[32]
(c)Although Mr Fayad believes he has standing to maintain the AAT proceeding, he has requested his trustee in bankruptcy either to join in the AAT proceeding, or to permit Mr Fayad to continue with the proceeding on behalf of the trustee in bankruptcy; and if the trustee refuses to permit him to do so, Mr Fayad will instruct his lawyers to commence a proceeding in this Court for an order that Mr Fayad continue with the AAT proceeding on behalf of the trustee.
(d)Mr Fayad’s sons are the owners of a property (Kellyville Property) with available net equity of $10 million. The Kellyville Property has been sold with settlement not due to occur “for approximately 10 months”.[33] Mr Fayad’s sons have given him support, and will assist by offering the DCT “security over the remaining approximately $10m in available equity, pending the determination of [Mr Fayad’s] application in the AAT and any appeals”.[34]
[32] Affidavit S Fayad 17.04.2024, [15]
[33] Affidavit S Fayad 17.04.2024, [23]
[34] Affidavit S Fayad 17.04.2024, [24]
Mr Fayad annexes a number of documents to his affidavit of 17 April 2024. These include a “Position Paper” the ATO provided to Mr Fayad in January 2016, before the Commissioner issued the amended notices of assessment,[35] and a letter dated 11 April 2016 from PricewaterhouseCoopers (PWC) containing a response to the Position Paper (PWC Objection).[36]
[35] Affidavit S Fayad 17.04.2024, annexure SF1, page 63 (CB543)
[36] Affidavit S Fayad 17.04.2024, annexure SF1, page 119 (CB599)
Mr Olthof, who appeared for the DCT, objected to my reading Mr Fayad’s affidavit of 17 April 2024 because it was served late, and the DCT is not in a position to deal with the material. After hearing further submissions, I decided I would deal with the reading of Mr Fayad’s affidavit of 17 April 2024 as follows:
HIS HONOUR: Look, I think the most I can do is I’m going to reserve the tender of that material or the reading of the material, to this end – if, having considered everything, it’s not going to make a difference to the case in the sense of – if it’s not going to make any difference, I will read it and consider it and give my reasons for it. If it raises a potential issue, then I will consider whether I should reject it or not. But of course when I – if I get to that territory, the – you know, it is a bankruptcy matter, after all – I might need to deal with it in a way of giving the parties further time to deal with it.
MR OLTHOF: Thank you, your Honour.
HIS HONOUR: I think that’s the only way I can deal with the late service of ‑ ‑ ‑
MR OLTHOF: Thank you, your Honour.
HIS HONOUR: ‑ ‑ ‑ affidavits.
MR OLTHOF: I’m content with that approach.
HIS HONOUR: So that gives me a free shot and Mr Cleary an opportunity to tell me exactly what he wants to say. You might even be in a position to say something about it, although I will – it will be on the basis that you want more time, and when I consider it, it will be the issue of whether it helps Mr Cleary. To the extent it helps Mr Cleary, I will give the – your client an opportunity, and I will be clear about what issues it may be relevant to – an opportunity to make submissions or put further evidence. So that’s – that will give me flexibility to deal with it that way.
MR OLTHOF: Thank you, your Honour.
Seventh, Mr Fayad sought to read an affidavit Mr Malacco made on 17 April 2024. Mr Malacco is a chartered accountant, whom Mr Fayad has engaged to assist Mr Fayad in his taxation dispute in the AAT proceeding. Mr Malacco deposes that he understands that the Commissioner was in the process of compiling the T-Documents which forms the basis of the tax assessments in dispute. Mr Malacco further deposes that although it is not possible to provide a full analysis of the merits of Mr Fayad’s application to the AAT until the Commission provides the T Documents, he had the opportunity to consider the PWC Objection; and he is of the opinion that the objection “is detailed and thorough, and identifies numerous issues that appear on their face to be clear issues that would result in the notices of assessment being found to be excessive”.[37] Mr Olthof objected to Mr Malacco’s affidavit because it did not explain the basis of Mr Malacco’s opinion. I ruled I would read Mr Malacco’s evidence subject to weight.
[37] Affidavit L Malacco 17.04.2024, [4]
Eighth, I read an affidavit Mr Fayad Lee Fayad made on 18 April 2024, in which he deposes that the Kellyville Property “has been sold with settlement due to take place in 10 months’ time”, and that on “completion of settlement approximately $10 million will be made available to F. Fayad Pty Ltd . . . and Collrea Pty Ltd . . . from the proceeds of the sale”.[38] Mr Fayad Lee Fayad does not annex any documents that would support the matters to which he deposes.
[38] Affidavit F L Fayad 18.04.2024, [4]
Finally, Mr Fayad read the second of the two affidavits he made on 7 December 2023.
WAS MR FAYAD SERVED WITH THE BANKRUPTCY NOTICE?
Provisions and principles
The act of bankruptcy on which the DCT relies is that defined by s 40(1)(g) of the Bankruptcy Act, namely:
if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia--within the time fixed for compliance with the notice; or
(ii) where the notice was served elsewhere--within the time specified by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter-claim, set-off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter-claim, set-off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained . . . .
The act of bankruptcy provided for by s 40(1)(g) of the Act is defined by reference to “a bankruptcy notice under the Act”; and the act of bankruptcy consists of a failure to “comply with the requirements of the” bankruptcy notice within “the time fixed for compliance with the notice”. That directs attention to “a bankruptcy notice under the Act”; and this is provided for by s 41 of the Bankruptcy Act. Sub-section 41(1) provides that “an Official Receiver may issue a bankruptcy notice on the application of a creditor who has obtained against a debtor”, among other things, “a final judgment or final order that (i) is of a kind described in paragraph 40(1)(g); and (ii) is for an amount of at least the statutory minimum”, that being $10,000.
Section 41 of the Bankruptcy Act does not specify the contents and, therefore, the requirements of a bankruptcy notice. The contents of a bankruptcy notice are left to be prescribed by regulation. That is made clear by s 41(2) of the Bankruptcy Act, which provides that the “notice must be in accordance with the form prescribed by the regulations”. A form has been prescribed by reg 9(1) of the Bankruptcy Regulations 2021 (Cth) (Bankruptcy Regulations), which provides that for “the purposes of subsection 41(2) of the Bankruptcy Act, the form of bankruptcy notice set out in Schedule 1 is prescribed”.
The prescribed form of bankruptcy notice contains two principal parts. The first may be described as a notification part; it requires the creditor to record his or her or its name, and the creditor’s address; and a statement that the person identified as the creditor claims the person to whom the bankruptcy notice is addressed owes to the creditor the “[a]mount as per the attached final judgment/s or order/s” (plus interest on that amount since judgment, less any payments made or credits allowed since judgment). The second principal part of the prescribed form of bankruptcy notice is that which specifies the requirements of the bankruptcy notice. The principal requirement is that specified in paragraph 1, namely (emphasis added):
You are required, within [ ] days after service on you of the Bankruptcy Notice, to either:
(a) pay to the creditor the amount of the debt claimed; or
(b) make arrangements to the creditor’s satisfaction for settlement of the debt.
The Bankruptcy Notice is in the prescribed form, and it required Mr Fayad to pay to BGPPL $9,978.620.39 “after service on” Mr Fayad of the Bankruptcy Notice. That directs attention to the meaning of “service”. There is no provision of the Bankruptcy Act or the Bankruptcy Regulations that specifically deals with the service of a bankruptcy notice. There is, however, reg 102 of the Bankruptcy Regulations that defines what constitutes the giving, or sending, or service of documents the Bankruptcy Act or the Bankruptcy Regulations require to be given, sent, or served. Regulation 102 provides as follows:
1Unless the contrary intention appears, if a document is required or permitted by the Act or this instrument to be given or sent to, or served on, a person (other than the Inspector-General, the Official Receiver or the Official Trustee), the document may be:
(a)sent by a courier service to the person at the address of the person last known to the person serving the document; or
(b)left, in an envelope or similar packaging marked with the person's name and any relevant document exchange number, at a document exchange where the person maintains a document exchange facility.
(2)In the absence of proof to the contrary, the document is taken to have been received by, or served on, the person when the document would, in the due course of business practice, be delivered to that address or document exchange.
Also relevant is s 28A of the Acts Interpretation Act 1901 (Cth) (Acts Interpretation Act), which relevantly provides:
(1)For the purposes of any Act that requires or permits a document to be served on a person, whether the expression “serve”, “give” or “send” or any other expression is used, then the document may be served:
(a) on a natural person:
(i) by delivering it to the person personally; or
(ii)by leaving it at, or by sending it by pre‑paid post to, the address of the place of residence or business of the person last known to the person serving the document . . .
(2) Nothing in subsection (1):
(a)affects the operation of any other law of the Commonwealth, or any law of a State or Territory, that authorises the service of a document otherwise than as provided in that subsection; or
(b)affects the power of a court to authorise service of a document otherwise than as provided in that subsection.
Mr Fayad was not personally served with the Bankruptcy Notice. That means that whether Mr Fayad was served with the Bankruptcy Notice will depend on whether the evidence supports a finding that he was served in the circumstances permitted by reg 102 of the Bankruptcy Regulations or s 28A of the Acts Interpretation Act. And here it would be convenient to refer to two matters. The first is Spender J’s observation in Repatriation Commission v Gordon that “[n]on-receipt is not the same as non-delivery”.[39] His Honour made that observation in relation to s 28A of the Acts Interpretation Act. That means that a person’s saying that he or she has not received a document would not, by itself, establish that the document was not delivered. Speaking of a provision equivalent to s 28A of the Acts Interpretation Act, the High Court, in Fancourt v Mercantile Credits Ltd, said:[40]
As the present case shows, delivery may be different from receipt by the intended recipient and, provided that delivery is not disproved, the fact of non-receipt does not displace the result that delivery is deemed to have been effected at the time at which it would have taken place in the ordinary course of the post. There is here no evidence of non-delivery.
[39] Repatriation Commission v Gordon [1990] FCA 619, at [50]
[40] Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, at page 97
The High Court, however, identified a line of cases “which deal with the effect of proof of non-delivery where service by post is permitted and used”.[41] The High Court said:[42]
The effect of the cases appears to be that proof of non-delivery means that service cannot be deemed to have taken place under the second limb of the section at the time of delivery in the ordinary course of the post and cannot be established as having taken place at any other time. The consequence is that where it is necessary to establish service at a particular time, proof of non-delivery is as effective as proof of nonservice, notwithstanding that service by post is in the circumstances permitted and the requirements of the Interpretation Act are observed
[41] Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, at page 97
[42] Fancourt v Mercantile Credits Ltd [1983] HCA 25; (1983) 154 CLR 87, at page 97
A second matter to note relates to the meaning of “the address of the person last known to the person serving the document” in s 28A of the Acts Interpretation Act. Jacobson J considered the meaning of a substantially similar expression in Civic Video Pty Ltd v Warburton. His Honour said:[43]
In my opinion, the effect of these authorities is that the last known address of the person is the address made known by the debtor. So much is clear because the purpose of the rule is that the bankruptcy notice should be brought to the attention of the debtor.
But that does not answer the question posed in Magafas, namely, who is to be the recipient of the intelligence made known by the debtor.
In my view that question is to be determined objectively on all of the facts of the case. In some instances it may be information that has been supplied to the world at large, as for example in QBE where the debtor conducted his practice as an accountant at premises on which there was a sign indicating it to be the office of the debtor’s firm. In others it may be the most recent address supplied to the creditor.
It would be wrong to confine the expression, in all instances, to the last address made known to the creditor. That is demonstrated in the present case. How can an address made known by Mr Warburton to Civic in 2005 be the last known address? What is required is a consideration of all the circumstances of the case.
In addition, since the purpose of the rule is that the bankruptcy notice should be brought to the debtor’s attention, it seems to me that ordinarily the creditor is under an obligation to take steps to ascertain the debtor’s most recent address as made known by him or her in readily accessible public records.
Evidence
[43] Civic Video Pty Ltd v Warburton [2013] FCA 934, at [74]-[78]
Mr Vassallo
As I noted earlier in these reasons, the DCT relies on two affidavits of Mr Vassallo, a licensed process server, to prove that the Bankruptcy Notice was served on Mr Fayad. In his affidavit made on 5 January 2022, Mr Vassallo deposed to the following:
(a)On 26 November 2021 he was instructed to personally serve on Mr Fayad a number of documents, which included the Bankruptcy Notice, and a letter dated 23 November 2021 from the BGPPL’s solicitors to Mr Fayad.[44]
(b)Mr Vassallo was instructed to attempt to personally serve Mr Fayad with the documents at three addresses, including a property at an address at Wentworthville (Property).
(c)At approximately 7:30 am on 30 November 2021 Mr Vassallo attended the Property, but he was unable to gain access. Mr Vassallo rang the video intercom on the front fence of the Property several times, but he did not receive a response.
(d)At approximately 10:20 am on 30 November 2021, Mr Vassallo was instructed to leave the documents, including the Bankruptcy Notice, in the letter box at the Property; and, at 12:45 pm on 30 November 2021, went to the Property and placed “the Documents in the letter box” at the Property. The “Documents were in a sealed envelope addressed to” Mr Fayad at the Property.[45]
[44] Affidavit R Vassallo 05.01.2022, [3]
[45] Affidavit R Vassallo 05.01.2022, [8]
In his affidavit made on 6 December 2023 Mr Vassallo says that after he made his first affidavit, he became aware that the address of the Property Mr Vassallo gave in his first address was situated in Constitution Hill, rather than in Wentworthville, being the address to which he referred in his first affidavit. Mr Vassallo annexed to his affidavit (which I admitted over objection) an extract from the website of the City of Parramatta which provides a short history of Wentworthville, which includes the following:
Constitution Hill is a suburb of the City of Parramatta . . . The suburb overlooks the city of Parramatta from above . . . .
In 2007, the area shown above, became the suburb Constitution Hill. Before this, the land had been part of the suburb of Wentworthville.
In evidence he gave under cross-examination, Ms Vassallo said he had been a process server for around 20 years; that he had served all sorts of documents, not just bankruptcy notices; he had probably served multiple documents every working day; and that, for the most part, Mr Vassallo would personally serve bankruptcy notices, but occasionally he would deliver them to an address. Mr Vassallo did not accept that it was possible that he had perhaps mixed up a document once or twice; or that he had delivered a document to the wrong address; and Mr Vassallo could not recall making a mistake in delivering documents. Mr Vassallo was asked whether he could specifically recall anything that he would have served on, say, 15 March 2024 (being some five weeks before the hearing). Mr Vassallo answered: “If you brought up a job, I would be able to remember it”.[46]
[46] T54.45
Mr Vassallo also gave the following evidence:[47]
Mr Vassallo, you don’t have any actual recollection of serving the documents you refer to in your affidavits, do you?‑‑‑It happened a long time ago, but I know the property I delivered them to.
You don’t have any actual recollection of serving the document, do you?‑‑‑No.
No?‑‑‑.....
And it is possible, isn’t it – human nature being what it is – that you made a mistake in what you delivered, isn’t it?‑‑‑I don’t believe so.
Well, I would suggest to you that, in fact, you did make a mistake in delivering the documents in that you either delivered it to the wrong address or delivered the wrong documents. That’s possible, isn’t it?‑‑‑Not – I don’t believe so.
[47] T55.20
Mr Vassallo gave the following evidence in re-examination:[48]
Mr Vassallo, in response to a question which was put to you by my friend, I think you indicated that you knew the property that you delivered the documents to?‑‑‑Yes, I do, yes.
Can you clarify?‑‑‑It’s a massive two-storey house with locked gates. Beside it, there’s a vacant block of land that’s fenced. It’s on a fairly busy street.
[48] T55.40
Mr Fayad
In his affidavit of 7 December 2023 Mr Fayad deposes that the mailbox at the Property is a large metal container set into a concrete post forming part of the perimeter fence; that “[w]e conscientiously remove all mail from the mailbox daily”, noting that Mr Fayad has a number of personal subscriptions to matters of personal interest to him, so he is interested in ensuring he receives all catalogues and brochures to do with those personal interests. Mr Fayad further deposed as follows:[49]
My wife, Maria Fayad, and I, both regularly inspect the letter box at the address . . . Constitution Hill NSW 2145. It is my practice that each day when I return home, I immediately walk to the letterbox and check for any mail. Often, I will check the mailbox and find that there is no mail in the letterbox, and will find it inside the home because my wife has already collected it. If there is any mail for me, my wife will open it and leave it on the kitchen counter for me to immediately see. If there is any mail received for my wife that I have collected, I will also open it and leave it on the kitchen counter for her to immediately see.
I would have recalled receiving a Bankruptcy Notice as it would have caused me to panic. . . . I have asked my wife, and she has also informed me that she did not recall receiving any mail that appeared to be a bankruptcy notice or any other formal type of notice.
[49] Affidavit S Fayad 07.12.2023, [6]
In response to a hearsay objection to the reception of the last sentence, I limited the last sentence as evidence of enquiries Mr Fayad made, but not as evidence of the truth of the statement Mr Fayad said Ms Fayad made in response to his inquiry.
In evidence given under cross-examination, Mr Fayad agreed that the property with the Wentworthville address and the property with the Constitution Hill address is the Property. Mr Fayad was not otherwise cross-examined about this aspect of his evidence.
Evidence of Mr Fayad’s address
The DCT relies on a number of items of evidence in support of the submission that the address of the Property is the address or place of residence of Mr Fayad last known to the DCT. The principal item of evidence is the results of an ASIC personal name search in relation to Mr Fayad that are annexed to the affidavit made by Ms Nguyen on 11 February 2022.[50] The results uniformly reveal Mr Fayad’s address to be the address of the Property.
[50] Affidavit K Nguyen 11.02.2022, annexure KN1, page 7
Parties’ submissions
Counsel for Mr Fayad submitted that I should not accept Mr Vassallo’s evidence because it purports to be based only on his memory in circumstances where Mr Vassallo, as an experienced process server, has served many documents, and where there was nothing particular about the circumstances in which he says he left the Bankruptcy Notice at the Property that would stand out in his mind.[51] As against that, counsel submitted, Mr Fayad gave evidence that he had not received the Bankruptcy Notice; that he had access to the mailbox at the Property; he would have panicked had he known he had been served with a bankruptcy notice; and he had made enquiries of other persons who have access to the mailbox on the Property.
[51] T100.20
The DCT, on the other hand, submits I should accept Mr Vassallo’s evidence because it was clear, and he was under no misunderstanding at all as to the service of the Bankruptcy Notice having been placed in the letterbox at the Property.[52] The DCT submits that Mr Fayad’s evidence goes no further than his stating he had not received the Bankruptcy Notice; but Mr Fayad’s evidence, by itself, is incapable of establishing that the Bankruptcy Notice was not delivered to the mailbox at the Property. The DCT further submitted it was fatal to Mr Fayad’s case that he did not call as a witness Ms Fayad, and did not provide an explanation for not calling her.
Determination
[52] T103.25
Did Mr Vassallo place the Bankruptcy Notice in the mailbox at the Property?
Mr Fayad does not submit that Mr Vassallo is not an honest witness or is not a competent process server; Mr Fayad’s contention that Mr Vassallo’s evidence should not be accepted is based on the submission that there was nothing memorable about the circumstances in which Mr Vassallo says he left the Bankruptcy Notice at the Property, a submission counsel for Mr Fayad sought to enhance by pointing to Mr Vassallo’s inability to recollect in the witness box what documents he had served only some five weeks before.
There are a number of matters that are relevant to determining whether Mr Vassallo’s evidence is based on his actual recollection. First, Mr Vassallo made his first affidavit on 5 January 2022, just over one month after 30 November 2021, being the day on which Mr Vassallo says he placed the Bankruptcy Notice in the letter box at the Property. Although not contemporaneous with the events to which Mr Vassallo deposes, his affidavit of 5 January 2022 is nevertheless sufficiently close in time to the events to which Mr Vassallo deposes to increase the probability that Mr Vassallo deposed to those matters from his actual memory. Second, although Mr Vassallo was cross-examined about his current memory of the events to which he deposed in his affidavit of 5 January 2022, the state of Mr Vassallo’s memory as at that time was not explored in cross-examination. Third, although in evidence given under cross-examination Mr Vassallo said he did not have an actual recollection of serving “the document” (that is, the Bankruptcy Notice), Mr Vassallo said he knew “the property” (that is, the Property); and, in re-examination, he described the Property. I find that manifests an actual recollection of the Property which, in turn, increases the probability that Mr Vassallo did attend the Property and placed the Bankruptcy Notice in the mailbox at the Property; and that is because it is his having done so that is capable of explaining Mr Vassallo’s having acquired a memory of the features of the Property he was able to recollect at the hearing.
For these reasons, I am satisfied that Mr Vassallo deposed to the matters contained in his affidavit of 5 January 2022 on the basis of his actual memory; and, for that reason, I find that, at 12:45 pm on 30 November 2021, Mr Vassallo placed in the mailbox at the Property the Bankruptcy Notice.
Was the address of the Property the address of Mr Fayad last known to the DCT?
On the basis of the evidence contained in Mr Ngyuen’s affidavit of 11 February 2022 (which I have described above), I am satisfied that the address of the Property is the address or residence of Mr Fayad last known to the DCT within the meaning of reg 102 of the Bankruptcy Regulations and s 28A of the Acts Interpretation Act.
Was the Bankruptcy Notice sent or left at the Property?
I am satisfied that a process server’s placing a document at an address is a “courier service” for the purposes of reg 102(1)(a) of the Bankruptcy Regulations and, in any event, constitutes the “leaving [of] it” at an address of the place of residence for the purposes of s 28A of the Acts Interpretation Act.[53]
[53] Repatriation Commission v Gordon [1990] FCA 619, at [32]
Does Mr Fayad’s evidence establish that the Bankruptcy Notice was not sent or left at the Property?
The DCT does not submit I should not accept Mr Fayad’s evidence that he did not receive the Bankruptcy Notice. That evidence, however, goes no further than establishing that Mr Fayad himself did not receive or otherwise become aware of the Bankruptcy Notice. As I noted earlier in these reasons, “non-receipt is not the same as non-delivery”. That Mr Fayad himself did not receive the Bankruptcy Notice does not by itself negate Mr Vassallo’s evidence that he had placed the Bankruptcy Notice in the mailbox at the Property. There are a number of possible explanations which could account for the Bankruptcy Notice having been placed in the mailbox at the Property without Mr Fayad having received it or otherwise have obtained notice of it. One possible explanation is that another occupier of the Property, and in particular Ms Fayad, had retrieved the Bankruptcy Notice from the mailbox without giving it to Mr Fayad. Mr Fayad has not eliminated that being a real possibility by calling Ms Fayad to give evidence.
Conclusion
I am satisfied that, on 30 November 2021, Mr Vassallo placed in the mailbox situated at the Property the Bankruptcy Notice and, for that reason, pursuant to reg 102(1)(a) of the Bankruptcy Regulations and s 28A of the Acts Interpretation Act, the Bankruptcy Notice was served on Mr Fayad on 30 November 2024; and that, by failing to pay the amount the Bankruptcy Notice demanded he pay by 21 December 2021, Mr Fayad committed an act of bankruptcy on 21 December 2021.
PROOF OF MATTERS IN S 52(1) OF THE BANKRUPTCY ACT AND BANKRUPTCY RULES
Subsection 52(1) of the Bankruptcy Act provides as follows:
At the hearing of a creditor’s petition, the Court shall require proof of:
(a)the matters stated in the petition (for which purpose the Court may accept the affidavit verifying the petition as sufficient);
(b) service of the petition; and
(c)the fact that the debt or debts on which the petitioning creditor relies is or are still owing;
and, if it is satisfied with the proof of those matters, may make a sequestration order against the estate of the debtor.
The matters that must be stated in a creditor’s petition are prescribed by s 47(1A) of the Bankruptcy Act, which provides that if “the rules of court prescribe a form for the purposes of this subsection, the petition must be in the form prescribed”. Rule 4.02 of the Federal Circuit and Family Court of Australia (Division 2) (Bankruptcy) Rules 2021 (Cth) (Bankruptcy Rules) prescribes a form for the purposes of s 47(1A) of the Bankruptcy Act. The form requires the creditor, among other things, to identify the act of bankruptcy on which the creditor relies, and the debt or debts the creditor claims the debtor owes it.
The third amended creditor’s petition relies on Mr Fayad having failed to comply with the requirements of the Bankruptcy Notice by 21 December 2021. The DCT relies on the affidavit of service of Mr Vassallo made on 5 January 2022; and I have already found I am satisfied on the basis of that affidavit that Mr Fayad was served with the Bankruptcy Notice, and that on 21 December 2022 Mr Fayad had committed an act of bankruptcy.
There is no dispute that all the other requirements under s 52(1) of the Bankruptcy Act and the Bankruptcy Rules for the making of a sequestration order have been met. I am therefore satisfied that the requirements for the making of a sequestration order have been met.
ADJOURNMENT OF HEARING OF CREDITOR’S PETITION
Principles
The Court has power under s 33(1)(a) of the Bankruptcy Act to adjourn any proceedings under that Act. That includes proceedings based on a creditor’s petition.
A useful discussion of the manner in which the power to grant adjournments should be exercised is the following passage from the reasons for judgment of Bromberg J in Rotstein& Associates v Slaveski:[54]
It is evident that s 33(1)(a) gives the Court a wide discretion in relation to the grant of an adjournment. As Sweeney J (with whom Franki J agreed) stated in Field v Commercial Banking Co of Sydney Ltd [1978] FCA 46; (1978) 37 FLR 341 at 349, it would be unwise to attempt to draw up an exhaustive catalogue of the circumstances to which the Court should pay regard in considering an application for an adjournment of a creditor’s petition. However, the Court’s discretion should be exercised with a mind to the policy objectives of the Bankruptcy Act. Relevantly to the issues before me, those objectives include the public interest in stopping individuals who are unable to meet their debts from continued insolvent trading and assisting creditors who are unable to recover debts owed to them: See Rozenbes v Kronhill [1956] HCA 65; (1956) 95 CLR 407at 414.
[54] [2010] FCA 493 at [17]
Other factors that have been held to be relevant include whether the debtor’s assets would be in jeopardy if an adjournment is granted,[55] and whether the debtor has filed an appeal based on genuine and arguable grounds against the judgment on which the application for a sequestration order is based.[56]
[55] Deputy Commissioner of Taxation v Mei Mei Yan (aka Quinnie Wong) [1998] FCA 783 (Emmett J)
[56] Ahern v The Deputy Commissioner of Taxation (QLD) [1987] FCA 312; (1987) 76 ALR 137 (Davies, Lockhart and Neaves JJ), at page 148
It is also necessary to bring to mind the following passage from the judgment of the Full Federal Court in Culleton v Balwyn Nominees Pty Ltd:[57]
In considering the question of an adjournment of the hearing of a creditor’s petition, it is fundamental to keep firmly in mind, at all times, the nature of the jurisdiction. Bankruptcy is not just a variety of inter partes litigation; it does not deal only with the private rights and obligations of the debtor and creditor; it is not a form of judgment execution. It is directed to the estate of a person who is insolvent. In that sense it has a public interest, through the general body of creditors and potential creditors of the debtor and prospective bankrupt, and through what is referred to as the change of status of the person who becomes a bankrupt. That status is changed because of the provisions of the Act which inhibit conduct and affect rights and obligations of the bankrupt, including making the bankrupt susceptible to criminal punishment for what would otherwise be innocent conduct.
[57] [2017] FCAFC 8, at [40]
Relevant to these reasons is the judgment of Robertson J in Deputy Commissioner of Taxation v Bayconnections Property,[58] a judgment on which Mr Fayad relies. In that case, at the hearing of an application brought by the DCT under s 459P of the Corporations Act 2001 (Cth) (Corporations Act) for an order under s 459A that the respondent company be wound up, the respondent company applied for an order that the hearing be adjourned pending the outcome of a proceeding it had brought in the AAT under Part IVC of the TAA53. The company submitted it was insolvent only because of the debt which it could not challenge in the proceeding in which the DCT sought to have it wound up. The DCT repeated the concession the DCT made to the High Court in Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd, that “[n]otwithstanding the presumption of insolvency that would apply under s 459C(2)(a) …upon the hearing of such winding up applications the court might properly have regard to whether the taxpayer had a “reasonably arguable” case in proceedings under Pt IVC of the TAA, if those proceedings then still be on foot”.[59]
[58] Deputy Commissioner of Taxation v Bayconnections Property [2012] FCA 363
[59] Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41, at [13]
After reviewing a number of authorities Robertson J said:[60]
There is no doubt that there is a discretion and that there are principles relevant to the exercise of that discretion. A principle of great importance is that the collection of the revenue should not be prejudiced. But there may be circumstances where an application to wind up the company on the grounds of insolvency should be adjourned until the outcome of Pt IVC proceedings is known. The circumstances in which such a discretion may be exercised include where the collection of the revenue is not prejudiced or any such prejudice is insubstantial, where a debtor company has a reasonably arguable case in proceedings under Pt IVC of the Administration Act and where those proceedings are soon to be heard.
[60] Deputy Commissioner of Taxation v Bayconnections Property [2012] FCA 363, at [26]
In Bayconnections Property the DCT submitted that the question whether the respondent company had a reasonably arguable case before the AAT only became relevant if the court is satisfied that, but for the respondent’s company’s tax debts, the company would be solvent; but the respondent company had not proved it was solvent. Robertson J did not accept that submission. His Honour said:[61]
. . . I am satisfied that although the company is insolvent it has no third party creditors apart from the Deputy Commissioner suing as or on behalf of the Commonwealth.
I am so satisfied despite the submission on behalf of the Deputy Commissioner, with reference to Ace Contractors & Staff Pty Ltd v Westgarth Development Pty Ltd [1999] FCA 728, Expile Pty Ltd v Jabb’s Excavations Pty Ltd (2003) 45 ACSR 711 and Deputy Commissioner of Taxation v De Simone Consulting Pty Ltd [2007] FCA 548, that the defendant had not adduced the “fullest and best” evidence. This is because the defendant before me was not attempting to prove that the company was solvent but merely that it had no other third party creditors. No such creditors have come forward in these proceedings and, in the circumstances of the company not trading for the last six years it is in my view unlikely that there are any such creditors. The documentary material read on behalf of the defendant showed no such creditors.
[61] Deputy Commissioner of Taxation v Bayconnections Property [2012] FCA 363, at [59], [60]
Robertson J, therefore, made an order pursuant to s 459R of the Corporations Act extending by four months the period by which the DCT’s application to wind up the respondent company be heard.
Mr Fayad’s submissions
In his counsel’s written submissions Mr Fayad submits that, if the Court “were satisfied that there is a genuine and arguable AAT Review proceedings brought by Mr Fayad, then it should decline to make a sequestration order”;[62] that Mr Fayad has genuine and arguable grounds;[63] that, although there may be an argument about whether Mr Fayad currently has standing to pursue the AAT proceeding, it is not for the Court to finally determine that question, there being a reasonable argument available that Mr Fayad does have standing;[64] and that, although Mr Fayad “discloses $1.6bn in creditors, that does not reflect the practical reality of the situation, and in particular, is inconsistent with the cash flow test of insolvency where they are not current liabilities”.[65] Mr Fayad further submits:
(a)There are no creditors to whom liability is not disputed that are pressing for the repayment of any debts; that indicates Mr Fayad is able to meet any current and undisputed liabilities readily from the assets available to him.[66]
(b)Although the DCT has pointed out that around $2.5 million in taxation liabilities are undisputed, those liabilities could be satisfied from the properties Mr Fayad identifies in his affidavit made on 28 September 2022, and, in any event, there is available a further $10 million in available equity in the Kellyville Property owned by Mr Fayad’s sons.[67]
(c)The Court could be satisfied there is sufficient evidence of solvency to warrant declining to make a sequestration order, particularly having regard to the ongoing dispute as to the taxation liabilities.[68]
[62] Respondent’s outline of submissions, [14]
[63] Respondent’s outline of submissions, [16]-[26]
[64] Respondent’s outline of submissions, [27]-[31]
[65] Respondent’s outline of submissions, [35]
[66] Respondent’s outline of submissions, [36]
[67] Respondent’s outline of submissions, [37]
[68] Respondent’s outline of submissions, [38]
The DCT, in Mr Olthof’s written submissions, submits that Mr Fayad has not provided the fullest and best evidence of solvency and, in any event, the evidence he has provided does not demonstrate Mr Fayad is able to pay his debts; and although Mr Fayad has challenged the assessment for income tax for the Income Tax Periods of 2002, 2003 and 2006-2014, Mr Fayad has not lodged any objections to the assessment of income tax for the Income Tax Periods of 2015 and 2016, which total $2,534,167.95. Further, in his written submissions, the DCT identifies a number of deficiencies in Mr Fayad’s evidence.
Evidence on which Mr Fayad relies
Mr Fayad relies on a number of items of evidence to support his contention that he is able to pay his debts. First, there is his affidavit made on 28 September 2022, in which he deposes to the following:
(a)Mr Fayad, either by himself or with Ms Fayad, owns eight properties (Properties) which he identifies, in two of which Mr Fayad holds a 50% interest, and in two of which he holds an 80% interest.[69] Mr Fayad says the properties are worth in excess of $21 million.[70] That statement is supported by a number of valuations that are exhibited to Mr Fayad’s affidavit.
(b)The Properties are subject to mortgages that secure loans of approximately $11 million.[71] Mr Fayad says he included in the exhibit to his affidavit “the available current loan statements”, but no loan statements are included in the exhibit.
(c)Mr Fayad has shareholdings in “several companies”, and lists four of those companies.[72] The companies own properties, and Mr Fayad receives income. Mr Fayad would be able to “readily liquidate” the shares to his relatives, including his sons, for an amount not less than $3 million.[73]
(d)Mr Fayad has given “many personal guarantees” as a consequence of his role in companies of which he is a director, and which “were created to operate various businesses, to develop various building projects, and to conduct joint ventures”. Mr Fayad could not estimate the amount of the debts he had guaranteed, “but may amount to several million dollars”. Mr Fayad says, however, that “the assets and business operations for which these guarantees have been given support these debts”.[74]
(e)Mr Fayad is the beneficiary of several discretionary trusts, the trustees of which have informed Mr Fayad that he “can be advanced from trusts fund” an amount “over” $3 million.[75]
[69] Affidavit S Fayad 28.09.2022, [7]
[70] Affidavit S Fayad 28.09.2022, [8]
[71] Affidavit S Fayad 28.09.2022, [9]
[72] Affidavit S Fayad 28.09.2022, [10]
[73] Affidavit S Fayad 28.09.2022, [11]
[74] Affidavit S Fayad 28.09.2022, [12], [13]
[75] Affidavit S Fayad 28.09.2022, [14]
The second item of evidence on which Mr Fayad relies is an affidavit he made on 15 February 2024. Mr Fayad annexes to that affidavit a draft statement of his affairs (SOA). The SOA discloses debts totalling $1,643,074,246, the largest being $1,316,000,000 claimed by BSH and BVH (BECL Claimed Debt). The SOA identifies each of the debts as either amounts in relation to guarantees that have not been engaged, or which Mr Fayad says he disputes. Mr Fayad identifies the debts he disputes, but he does not identify the grounds on which he disputes them. In relation to the BECL Claimed Debt Mr Fayad says there are proceedings in the Supreme Court of New South Wales, but they are suspended because of the sequestration order.[76]
[76] Affidavit S Fayad 15.02.2024, [8]
Mr Fayad also deposes that in addition to the real property and shares he identified in the SOA, he is the beneficiary of the discretionary trusts he identified in his earlier affidavit. Although he has no control over whether any distribution is made in his favour, Mr Fayad believes that “once the taxation liability is clarified and reduced to the correct amount, I can pay that liability from my personal assets, and to the extent I have a shortfall of funds, I believe I will be provided with trust distributions to pay any shortfall to the ATO”.[77]
[77] Affidavit S Fayad 15.02.2024, [9]
Mr Fayad concludes his affidavit as follows:[78]
Although the financial circumstances described above are quite extraordinary in that my contingent debts are large, I am confident that after realisation of real property security behind those debts, my ability to repay or manage my debts will be within my capacity.
The Sequestration Order has prevented me from acting as a director and accordingly, making decisions which would assist me to satisfy my creditors.
[78] Affidavit S Fayad 15.02.2024, [10], [11]
In evidence given under cross-examination, Mr Fayad said he did not recall the amounts the DCT is claiming against him, or the amounts that other creditors claim he owes them. Mr Fayad said that the mortgages over the properties he identified in his first affidavit were granted to a “private funder”, being iProperties.[79] Mr Fayad was taken to caveats that had been lodged on the title to the Property by two companies, and by the Chief Commissioner of State Revenue (CCSR), and he was asked whether he had disclosed “those creditors” in the affidavits Mr Fayad had made in the proceeding, in response to which Mr Fayad answered “I can’t recall this”.[80] Mr Fayad accepted that the two companies and the CCSR lodged caveats on properties at Revesby and South Granville, and Mr Fayad agreed that one of the two creditors lodged a caveat over the Property and the other two properties to record its interest as Mr Fayad’s creditor.[81] Mr Fayad then gave the following evidence:[82]
Yes. Mr Fayad, I put to you that in respect of each of the properties which you have identified in your affidavit, being properties that you own, although you have identified a mortgage over those properties, you have not identified anywhere in your evidence any of the creditors who have lodged caveats on title to your properties. Do you agree with that?‑‑‑I can’t recall this.
You can’t recall. So, Mr Fayad, you do agree, don’t you, that in your evidence, you do not disclose the totality of your debts and liabilities?‑‑‑I mean, I can’t recall all this, no.
You can’t recall, Mr Fayad – I’ve taken you to a number of documents which identify creditors which are not referred to anywhere in your evidence. Do you agree?‑‑‑I can’t recall it, yes. I would have to look at it, yes.
You can’t recall the evidence which you’ve given in these proceedings?‑‑‑No, in this .....
Did you prepare your own affidavits?‑‑‑Yes.
[79] T62.5
[80] T62.10; T62.40. The documents to which Mr Fayad was taken form part of Exhibit A.
[81] T64.40
[82] T65.5-T65.15
Mr Fayad was also cross-examined about the evidence of his ownership of shares. Mr Fayad was taken to the results of a search of a company called Lexing House 88 Pty Ltd which recorded Mr Fayad was a “former (shareholder/member)”[83] When asked whether he agreed he no longer is a member of Lexing House 88 Pty Ltd, Mr Fayad said “I can’t recall this. Which – what’s Lexing House”.[84] Mr Fayad was also taken to the results of a search another company, Macquarie Investments 8888 Pty Ltd,[85] of which, in his affidavit of 28 September, Mr Fayad said he was a shareholder, which records that Mr Fayad is a “former (shareholder/member)”, and Mr Fayad accepted he is no longer a shareholder of that company.[86] Finally, Mr Fayad was taken to the results of a search of the name “Murrace”,[87] being one of the companies of which, in his affidavit of 28 September 2022, Mr Fayad said he was a member. The results of the search revealed that no company or business by that name had been registered. Mr Fayad gave the following evidence:[88]
You agree, don’t you, Mr Fayad, that that search identifies that no company with that name has been registered with ASIC, registered under the Corporations Act?‑‑‑I can’t recall this.
You can’t recall. You can’t recall whether the spelling of that company is correct?‑‑‑Yes, that’s right. I can’t recall it.
And I will put to you, Mr Fayad, you likely cannot recall whether you own any shares in that company?‑‑‑It all depends. I don’t know. I don’t know what that company sold.
Well, Mr Fayad, you swore an affidavit in this proceeding saying that you were a shareholder of that company?‑‑‑Sorry?
The evidence you are now giving is that you are not aware whether you are or not?‑‑‑I can’t recall.
[83] Exhibit A, page 94
[84] T65.45
[85] Exhibit A, page 105
[86] T66.15
[87] Exhibit A, page 136
[88] T67.10
A third item of evidence on which Mr Fayad relies is the affidavit of Mr Fayad Lee Fayad, to which I have already referred, in which he deposes that the Kellyville Property “has been sold with settlement due to take place in 10 months’ time”, and that on “completion of settlement approximately $10 million will be made available to F. Fayad Pty Ltd . . . and Collrea Pty Ltd . . . from the proceeds of the sale”.[89]
[89] Affidavit F L Fayad 18.04.2024, [4]
Determination
The question that arises is not whether Mr Fayad has proved he is able to pay his debts; the question is whether, given his challenges to the amended notices of assessment that are currently on foot in the AAT, the hearing of the creditor’s petition should be adjourned, pending the determination of the AAT proceeding. That question must be determined having regard to the matters on which Mr Fayad relies for submitting that the discretion to adjourn the hearing of the creditor’s petition should be exercised in favour of adjourning the hearing of the creditor’s petition. I will consider that question on the assumptions that Mr Fayad has genuine and reasonable grounds for challenging the amended notices of assessment, and, moreover, he has standing to pursue the AAT proceeding.
The first matter on which Mr Fayad relies is the contention that there are no creditors to whom liability is not disputed that are pressing for the repayment of any debts, which indicates that Mr Fayad is able to meet any current and undisputed liabilities readily from the assets available to him.[90] That submission is incorrect to the extent that Mr Fayad does not dispute the debts that arose on the Commissioner issuing the notices of assessment for the 2015 and 2016 Income Tax Periods (Notices of Assessment), and the GIC payable on those amounts. The DCT is pursuing those debts together with the debts that accrued on the Commissioner issuing the amended notices of assessment. Further, Mr Fayad has provided no evidence on the basis of which it is possible to determine the grounds on which Mr Fayad disputes debts claimed by persons other than the DCT and, therefore, whether Mr Fayad has any reasonable grounds for disputing those debts.
[90] Respondent’s outline of submissions, [36]
The second matter on which Mr Fayad relies is his contention that he has money available to pay the amounts of income tax for which he has been assessed under the Notices of Assessment, and the GIC payable on those amounts.[91] That contention must be assessed by reference to the amounts stated in the Notices of Assessment, and the dates on which Mr Fayad became liable to pay those amounts.
[91] Respondent’s outline of submissions, [37]
The notice of assessment for the 2015 Income Tax Period was issued on 16 November 2016 in an amount of $83,392.00;[92] and the notice of assessment for the 2016 Income Tax Period was issued on 5 March 2018 in an amount of $1,442,264.90.[93] With the GIC that has accrued on those amounts up to 30 July 2023, Mr Fayad owed as at 30 July 2023 $159,098.48 and $2,513,259.40 respectively. Mr Fayad has provided no evidence to explain why he has not made any payment on account of the amounts stated in the Notices of Assessment; and the absence of any such evidence is a basis for drawing the obvious inference, and I find, that Mr Fayad has been unable since 16 November 2016 to pay any part of the debt that accrued, first on the Commissioner’s issuing the notice of assessment for the 2015 Income Tax Period, and, second, on the additional debt that accrued on the Commissioner’s issuing the notice of assessment for the 2016 Income Tax Period.
[92] Affidavit M Kristjansson 15.08.2023, [12]; Exhibit MK-1, page 47
[93] Affidavit M Kristjansson 15.08.2023, [12]; Exhibit MK-1, page 49
Further, Mr Fayad has not provided evidence on the basis of which it would reasonably be open to find that, although Mr Fayad has not paid any part of the debts that accrued under the Notices of Assessment, he is now in the position in which he could readily obtain the money necessary to discharge the debts he owes under the Notices of Assessment. Mr Fayad does not, for example, provide evidence that the properties he identifies in his affidavits were not available to him as a means of obtaining money with which to pay the amounts he owes under the Notices of Assessment for the 2015 and 2016 Income Tax Periods, or that those properties were burdened with debt with which they are no longer burdened. In the absence of any such evidence, the obvious inference is available to be drawn, and I find, that since November 2016, or at least for a substantial period commencing some time after November 2016, the properties were available to Mr Fayad but he could not use them to raise the money that is necessary to pay the amounts stated in the Notices of Assessment.
Quite apart from these inferences that are available to be drawn, the evidence Mr Fayad has provided is insufficient to support a finding he holds assets on the basis of which he would be able to obtain money to pay the debts that have arisen under the Notices of Assessment.
(a)The evidence in relation to the Kellyville Property is not supported by any documents; and, in any event, money would not be available from that source for 10 months.
(b)Although Mr Fayad acknowledges the properties to which he refers in his affidavit are subject to mortgages, he provides no evidence of the amounts that are owing under loans that are secured by the mortgages, or the terms of the loans, or whether the mortgagee would be agreeable either to Mr Fayad selling the properties or to mortgaging the properties to obtain money with which to pay the amounts stated in the Notices of Assessment (together with GIC).
(c)Mr Fayad provides no evidence about the nature of his arrangements, if any, he has with the persons who have lodged caveats on three of the properties to which he refers in his affidavit of 28 February 2022.
(d)Mr Fayad’s evidence about his shareholding is incorrect in relation to three of the companies he has identified in his affidavits in that, contrary to what he deposed, he is no longer a shareholder of two of the companies, and one of the companies does not appear to exist; and, in any event, his evidence about the assets of those companies does not rise above unparticularised assertion.
(e)As I have already noted, Mr Fayad provides no evidence on the basis of which it is possible to determine the grounds on which Mr Fayad disputes the debts he says he disputes and, therefore, whether Mr Fayad has any reasonable grounds for disputing the debts.
(f)Mr Fayad does not identify the discretionary trusts from which he says he may receive money, or matters that are relevant to assessing the amount he may be able to obtain from those trusts, or the probability of him obtaining any amount.
The third matter on which Mr Fayad relies is the submission that the Court could be satisfied there is sufficient evidence of solvency to warrant declining to make a sequestration order, particularly having regard to the ongoing dispute as to the taxation liabilities.[94] Given the matters I identify in the preceding three paragraphs, I cannot be satisfied there is sufficient evidence of solvency. On the contrary, Mr Fayad’s having failed to pay any amount towards the debts that accrued on the issue of the Notices of Assessment supports a positive finding that Mr Fayad is not able to pay all of his debts as they fall due.
[94] Respondent’s outline of submissions, [38]
For these reasons, I am satisfied that the appropriate exercise of the discretion to grant an adjournment of the hearing of the creditor’s petition is that I refuse to grant Mr Fayad an adjournment of the creditor’s petition, pending the determination of the AAT proceeding. Even if it be assumed that: (a) Mr Fayad has reasonable grounds for challenging in the AAT proceeding the amounts stated in the amended notices of assessment and, therefore, has reasonable prospects of succeeding entirely in the AAT proceeding; and (b) Mr Fayad has reasonable grounds for challenging the claims made by his other creditors; Mr Fayad has not demonstrated that he has any reasonable prospects of paying the amounts stated in the Notices of Assessment.
The circumstances in which Mr Fayad applies for an adjournment of the hearing of the creditor’s petition is not analogous to the circumstances in which the respondent company in Bayconnections applied for, and was granted, an adjournment of the hearing to wind up the company. Unlike the circumstances in Bayconnections, the DCT is not the only creditor; and, moreover, the DCT in the case before me relies on debts that include two debts Mr Fayad does not dispute, one of which has remained unpaid since 16 November 2016, and the other of which has remained unpaid since 5 March 2018.
DISPOSITION
I propose to order that the application for review be dismissed, and that the Registrar’s orders of 14 September 2023 be affirmed. I will also order that the costs of the DCT be paid out of Mr Fayad’s estate, and that they have the same priority as the costs of the petition.
I certify that the preceding eighty-six (86) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Manousaridis. Associate:
Dated: 17 July 2024
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