Deputy Commissioner of Taxation v Kingston

[2014] FCCA 1013

FEDERAL CIRCUIT COURT OF AUSTRALIA

DEPUTY COMMISSIONER OF TAXATION v KINGSTON [2014] FCCA 1013

Catchwords:
BANKRUPTCY – Application for adjournment of creditor’s petition – factors relevant to adjourning creditor’s petitions – whether possible application for judicial review of decision of Deputy Commissioner of Taxation not to remit interest and penalties on debt on which petition based is relevant to granting an adjournment – whether possibility of debtor providing information to the Deputy Commissioner of Taxation relating to the remission of interest and penalty is relevant to granting an adjournment – adjournment of six weeks granted on terms.

Legislation:

Administrative Decisions (Judicial Review) Act 1977 (Cth), ss.5, 13.

Bankruptcy Act 1966 (Cth), s.33(1)(a).

Ahern v The Deputy Commissioner of Taxation (QLD) (1987) 76 ALR 137
Deputy Commissioner of Taxation v Mei Mei Yan (aka Quinnie Wong) [1998] FCA 783
McCracken v Phoenix Constructions (Queensland) Pty Ltd [2013] FCAFC 41
Rotstein & Associates v Slaveski [2010] FCA 493

Applicant: DEPUTY COMMISSIONER OF TAXATION

Respondent: CHRISTOPHER LYALL KINGSTON

File Number: SYG 2864 of 2013

Judgment of: Judge Manousaridis

Hearing date: 13 May 2014

Delivered at: Sydney

Delivered on: 20 May 2014

REPRESENTATION

Solicitors for the Applicant: Ms Skinner, Gadens Lawyers

Respondent appeared by telephone.

ORDERS

1. Subject to orders 2 and 3, the hearing of the creditor’s petition be adjourned to 2.15 pm on 4 July 2014.

2. Order 1 is subject to the following terms:

   (a)by 3 June 2014, or by such later time as the applicant may agree, the respondent provide to the applicant a document that specifies:

   (i)the amount of the debt claimed by the applicant the respondent says he is or will be in a position to pay;

   (ii)by when the respondent says he will be able to pay the amount referred to in (i); and

   (iii)the basis on which the respondent says he will be able to pay the amount referred to in (i) by the time referred to in (ii); and

   (b)the respondent provide to the applicant such documents and other information as the applicant may reasonably request for the purpose of the applicant’s assessing the matters that will be contained in the document referred to in (a).

3. The costs of the hearing of 13 May 2014 are reserved.

4. The parties have liberty to apply on such notice as the circumstances warrant.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 2864 of 2013

DEPUTY COMMISSIONER OF TAXATION

Applicant

And

CHRISTOPHER LYALL KINGSTON

Respondent

REASONS FOR JUDGMENT

Introduction

1. On 13 May 2014 there was before me an application for a sequestration order and an application by the respondent for an adjournment of the hearing of the application for a sequestration order.

2. I read the affidavits on which the applicant relies for the sequestration order, the affidavit and other evidence on which the respondent relies for an adjournment, and heard submissions in relation to the application for an adjournment. I indicated that I would reserve my decision on both applications, noting that if I were to decide not to grant an adjournment I would make the sequestration order, assuming the applicant (Commissioner) satisfied me he was entitled to such order.

Background

1. These proceedings were commenced on 20 November 2013 when the Commissioner filed a creditor’s petition. The act of bankruptcy on which the creditor’s petition relied was the respondent’s failure to comply with a bankruptcy notice that was served on him on 2 May 2013. The bankruptcy notice demanded payment of $131,411.13. That represented a judgment of $128,599.79 the Commissioner obtained in the District Court of New South Wales against the respondent together with interest that had accrued on the judgment. The creditor’s petition claimed that the respondent continued to owe the Commissioner $131,411.13 demanded in the bankruptcy notice.

2. The respondent was served with the creditor’s petition on 3 February 2014. On 27 November 2013, however, the respondent forwarded to the agent of the Commissioner a bank cheque for $131,500. On 13 December 2013 the Commissioner credited $131,500 to the “integrated client account” the Commissioner maintained in relation to the respondent.

3. On 4 February 2014, when the creditor’s petition first came before the Court, the respondent filed a notice of opposition. The only ground of opposition raised by the notice was that “[t]he debt upon which this petition is founded has been paid”. The Court directed the respondent file any affidavits on which he intended to rely in opposition to the creditor’s petition, and the Court adjourned the hearing of the creditor’s petition to 18 February 2014. The respondent filed an affidavit on 17 February 2014 in which he deposed to having paid to the Commissioner the amount claimed in the creditor’s petition.

4. On 14 February 2014 the Commissioner filed an application for leave to amend the creditor’s petition. The Commissioner proposed to amend the creditor’s petition to claim that the respondent was indebted in the sum of $183,499.99. That was said to represent an amount the respondent owed to the Commissioner in addition to the $131,411.13 demanded in the bankruptcy notice.[1] On 18 February 2014 the Court granted the Commissioner leave to file the amended creditor’s petition, and the hearing of the petition was adjourned to 10 March 2014.

   [1] The Commissioner amended the creditor’s petition relying on McCracken v Phoenix Constructions (Queensland) Pty Ltd [2013] FCAFC 41 (Lander, Siopis and Gilmour JJ).

5. The hearing of the creditor’s petition was adjourned on 10 March 2014 and again on 28 April 2014 when the hearing was adjourned to 12 May 2014. On 5 May 2014 the respondent, through a solicitor, sent a letter to the solicitor for the Commissioner in which he requested that the Commissioner remit the penalty and interest component of the amount the Commissioner claimed the respondent owed the Commissioner. The applicant claimed that that component amounted to around $152,000. The solicitor further said that if the Commissioner were to remit penalties and interest, the respondent would owe the Commissioner $116,000 which the respondent would be able to pay with money to be provided by his wife.

6. The Commissioner’s solicitor responded by letter dated 7 May 2014. The solicitor said that the Commissioner considered the application for remission, but refused it. The solicitor noted that the only amount of interest available for any application for remission is $36,590.

7. The respondent replied by letter dated 9 May 2014. He said that the Commissioner’s solicitor’s letter did not refer to whether penalties were available to be remitted and that, for that reason, it appeared the Commissioner did not properly consider the respondent’s application for remission. The respondent then requested, pursuant to s.13 of the Administrative Decisions (Judicial Review) Act 1977 (Cth) (ADJR Act), that the Commissioner provide his reasons for refusing to remit any of the amount owing by the respondent to the applicant.

8. By letter dated 9 May 2014 the solicitor for the Commissioner informed the respondent that the Commissioner refused the application for remission because “you have failed to provide any compelling reason to our client for the remission of general interest charge and penalties”. The solicitor further said that the Commissioner did not consider as a proper reason for remission a reason the respondent had previously given for his failure to pay his tax; and the respondent has “at no time been proactive in engaging with the ATO”.

Submissions of the parties

1. The respondent seeks an adjournment of the hearing of the creditor’s petition to pursue a right he claims he has under s.13 of the ADJR Act to compel the Commissioner to provide reasons for refusing the respondent’s request for remission of penalties and interest, and, if the reasons the Commissioner gives in response to the respondent’s request show the Commissioner did not consider the application according to law, to seek judicial review of such decision under s.5 of the ADJR Act. The respondent submits that there are reasonable grounds for contending that the Commissioner did not properly consider the respondent’s application for a remission of penalty and interest.

2. The Commissioner, on the other hand, submits that an officer of the Australian Taxation Office did properly consider the respondent’s application for remission, and the officer rejected the application on grounds that accorded with the Commissioner’s policies.[2] For those reasons, the Commissioner’s “discretionary power of remission has limited availability”.[3]

   [2] The Commissioner relies on the affidavit of Malcolm Lycett made on 12 May 2014.

   [3] T18.1

3. Before I consider the parties’ submissions, it would be useful to identify the legal principles that should guide me in determining the respondent’s application for an adjournment.

Principles governing adjournments of creditor’s petitions

1. The Court has power to adjourn any proceedings under the Act before it on such terms as it thinks fit.[4] That, of course, includes proceedings based on a creditor’s petition.

   [4] Subsection 33(1)(a) of the Bankruptcy Act 1966 (Cth)

2. 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:[5]

   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) 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) 95 CLR 407 at 414.

   [5] [2010] FCA 493 at [17]

3. Other factors that have been held to be relevant include whether the debtor’s assets would be in jeopardy if an adjournment is granted,[6] 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.[7]

   [6] Deputy Commissioner of Taxation v Mei Mei Yan (aka Quinnie Wong) [1998] FCA 783 (Emmett J): “I consider that if there were evidence before me to indicate that there is a reasonable prospect that assets of a debtor which might otherwise be available to the Official Trustee were in jeopardy as a consequence of adjournment of the petition, that would be a relevant consideration in deciding whether or not to adjourn the petition.”

   [7] Ahern v The Deputy Commissioner of Taxation (QLD) (1987) 76 ALR 137 (Davies, Lockhart and Neaves JJ) at 148

Should the creditor’s petition be adjourned?

1. There is force in the Commissioner’s submission that the Commissioner’s “discretionary power of remission has limited availability” and that, accordingly, there is little utility in adjourning the creditor’s petition. In my opinion, however, there are factors which favour the granting of an adjournment.

2. First, the respondent has identified a ground on which it could reasonably be argued that the Commissioner did not properly consider the applicant’s claim for remission. The letter dated 7 May 2014 from the Commissioner’s solicitor referred to the relatively small amount of interest that was available for remission without, however, referring to the amount of penalties that was available for remission. There is therefore some prospect that the Commissioner may be required to, or he may on his own motion, reconsider the applicant’s claim for remission and arrive at a different conclusion.

3. Second, even if, as he submits, the Commissioner rejected the respondent’s application for remission in accordance with his policies, and he has done so in a manner that cannot reasonably be challenged on judicial review, it seems to me there are matters the Commissioner considers relevant to the exercise of his power to remit penalties and interest that have not been explored, or sufficiently explored in the case of the respondent. I here refer to the statement made in the Commissioner’s solicitor’s letter dated 9 May 2014 that the Commissioner was of the view that the respondent has “at no time been proactive in engaging with the ATO”. I read that as saying that the respondent has not actively informed the Commissioner of matters affecting the respondent’s circumstances that may influence the Commissioner to agree to remit interest and penalties. Such matters may include the actual assets and liabilities of the respondent, and the ability of the respondent to procure payment of at least some of his liabilities from sources that would not be available to the Commissioner were the respondent made bankrupt. The granting of an adjournment will provide the respondent with an opportunity to remedy what the Commissioner has regarded as a lack of engagement by the respondent, and thus give rise to the possibility of the Commissioner arriving at a different conclusion in relation to the remission of interest and penalties. The evidence suggests the respondent has already made payments to the Commissioner with money borrowed from family members; and, at the hearing, the respondent indicated that he is confident he will be able to raise money with which to pay the debt claimed by the Commissioner if interest and penalties are remitted. 

4. Third, there is evidence that the respondent practices as a solicitor in two offices and has a staff of five employees. From this it may be inferred that, apart from the debt he owes the Commissioner, the respondent has been, and continues to be in the position to pay his employees and all other costs that he incurs in the ordinary course of his practice. Provided these persons supply services to the respondent, and the respondent pays them, in the ordinary course of business, such persons are unlikely to suffer prejudice if they continue to supply the respondent with services during the period of any adjournment.

5. Fourth, there do not appear to be any other creditors of the respondent, or at least creditors (such as family members from whom, so the evidence suggests, the respondent has borrowed money to pay towards the debt he owes the Commissioner) who support the making of a sequestration order against the estate of the respondent.

6. And fifth, it is not suggested that the respondent has assets that are capable of being lost to any trustee who may be appointed if a sequestration order is made.

7. Taking these factors into account, I am of the opinion that I should adjourn the hearing of the creditor’s petition for a period of six weeks. That will give the respondent sufficient time to obtain and consider the statement for reasons the respondent has requested from the Commissioner under s.13 of the ADJR Act. More importantly, it will give the respondent an opportunity to become “proactive in engaging with the ATO” by providing the Commissioner with complete information concerning the respondent’s financial situation and his ability to pay the debt claimed by the Commissioner if interest and penalties are remitted.

Disposition

1. Accordingly, I propose to order that the hearing of the creditor’s petition be adjourned to 2.15 pm on 4 July 2014. I further propose, however, to grant the adjournment on the following terms:

   a)by 3 June 2014, or by such later time as the Commissioner may agree, the respondent provide to the Commissioner a document that specifies:

   i)the amount of the debt claimed by the Commissioner the respondent says he is or will be in a position to pay;

   ii)by when he says he will be able to pay the amount referred to in (i); and

   iii)the basis on which the respondent says he will be able to pay the amount referred to in (i) by the time referred to in (ii); and

   b)the respondent provide to the Commissioner such documents and other information as the Commissioner may reasonably request for the purpose of the Commissioner assessing the matters that will be contained in the document referred to in (a).

2. I also propose to grant the parties liberty to apply, and to reserve the costs of the hearing of 13 May 2014.

I certify that the preceding twenty-five (25) paragraphs are a true copy of the reasons for judgment of Judge Manousaridis

Associate: 

Date: 20 May 2014