Deputy Commissioner of Taxation v Scioscia
[2012] FMCA 974
•1 November 2012
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| DEPUTY COMMISSIONER OF TAXATION v SCIOSCIA | [2012] FMCA 974 |
| BANKRUPTCY – Creditor’s Petition – notice stating Grounds of Opposition to Petition not filed – no grounds of opposition to the petition made out at hearing – sequestration order made. |
| Bankruptcy Act 1966 (Cth) ss.40, 43, 44, 47, 52 Bankruptcy Act 1924 (Cth) s.95 Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) rr. 4.02, 4.04, 4.06 |
| Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400 Cain v Whyte (1933) 48 CLR 639 Re Poulson; Ex parte Hempenstall Bros Ltd (No 2)(1929) 1 ABC 54 Re Sarina: Ex Parte Wollondilly Shire Council (1980) ALR 266 Re Svir; Ex parte Deputy Commissioner of Taxation (1998) 83 FCR 314 Sandell v Porter (1966) 115 CLR 666 Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 |
| Applicant: | DEPUTY COMMISSIONER OF TAXATION |
| Respondent: | PETER SCIOSCIA |
| File Number: | SYG 1313 of 2012 |
| Judgment of: | Lloyd-Jones FM |
| Hearing date: | 10 October 2012 |
| Date of Last Submission: | 10 October 2012 |
| Delivered at: | Sydney |
| Delivered on: | 1 November 2012 |
REPRESENTATION
| Solicitors for the Applicant: | Ms A. Hussein of Craddock Murray Neumann Lawyers |
The Respondent appeared in person
ORDERS
A Sequestration Order be made against the estate of the Respondent Debtor Peter Scioscia.
The Applicant Creditor’s costs, including reserved costs if any, be taxed and paid from the estate of the Respondent Debtor in accordance with the Bankruptcy Act 1966 (Cth).
A Copy of this Sequestration Order be given to the Official Receiver in Sydney within 2 days.
THE COURT NOTES:
That the date of the act of bankruptcy is 20 February 2012.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 1313 of 2012
| DEPUTY COMMISSIONER OF TAXATION |
Applicant
And
| PETER SCIOSCIA |
Respondent
REASONS FOR JUDGMENT
Introduction
On 15 June 2012 the applicant creditor, the Deputy Commissioner of Taxation (the “DCT”), filed a Creditors’ Petition in this Court against the respondent debtor, Peter Scioscia, pursuant to a judgment of the District Court of New South Wales entered on 18 August 2011, of which the balance due is $298,656.60. This matter first came before a registrar of the Court on 25 July 2012 where it was adjourned to 22 August 2012, then subsequently adjourned again to 10 September 2012. On 10 August 2012 the respondent filed an affidavit. No notice stating grounds of opposition to the petition has been filed. The Registrar, before whom the matter came on 10 September 2012, referred the matter to this Court to be heard. The matter was adjourned for hearing on 10 October 2012.
Evidence
The DCT sought to rely on the following evidence at the hearing of the petition:
a)Affidavit of Darrell Cunneen sworn on 13 June 2012 (as Part 2 of the Creditor’s Petition);
b)Affidavit of Jemma Windrim sworn on 15 June 2012;
c)Affidavit of Andrew Jones sworn 30 January 2012;
d)Affidavit of Andrew Jones sworn 29 June 2012;
e)Affidavit of Darrell Cunneen sworn 10 October 2012; and
f)Affidavit of Jemma Windrim sworn 10 October 2012.
The respondent sought to rely on the following evidence:
a)Affidavit of Peter Scioscia sworn 9 August 2012.
Notice Stating Grounds of Opposition to Petition
The respondent did not file a Notice Stating Grounds of Opposition to Petition.
Formal Requirements for Issuance of a Sequestration Order
The Court may make a sequestration order upon proof of the matters set out in s.52(1) of the Bankruptcy Act 1966 (Cth) (the “Bankruptcy Act”), and subject to the jurisdiction to make sequestration orders under s.43 of the Bankruptcy Act and the conditions on which the creditor may petition under s.44 of the Bankruptcy Act being met.
Section 52(1) of the Bankruptcy Act provides as follows:
(1)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; verified by an affidavit of service,
(c) the fact that the debt or debts on which the petitioning creditor relies or is still owing;
And, if it is satisfied with the proof of these matters, may make a sequestration order against the estate of the debtor.
Section 43 of the Bankruptcy Act provides that the Court may make a sequestration order when:
(a)A debtor has committed an act of bankruptcy (Bankruptcy Act s.43(1)(a)); and
(b)Relevantly, at the time when the act of bankruptcy was committed, the debtor was personally present and an ordinarily resident in Australia (Bankruptcy Act s.43(1)(b)(i)).
Section 44 of the Bankruptcy Act provides that the creditor’s petition is not to be presented, unless:
(a) The debt is more that $5,000;
(b)The debt is a liquidated sum due at law and payable immediately (Bankruptcy Act s.44(1)(b)); and
(c)The act of bankruptcy in which the petition is founded was committed within 6 months before the presentation of the petition (Bankruptcy Act s.44(1)(c)).
The applicant creditor is also obliged by the Federal Magistrates Court (Bankruptcy) Rules 2006 (Cth) (“the FMC (Bankruptcy) Rules”) to put before the Court affidavits:
a)Verifying the petition (Bankruptcy Act s.47(1), FMC (Bankruptcy) Rules r.4.02);
b)As to search of records of the Court and of the Federal Court as to any application in relation to the Bankruptcy Notice (FMC (Bankruptcy) Rules rr.4.04(1)(a) and 4.04(2));
c)Of service of the Bankruptcy Notice (FMC (Bankruptcy) Rules r4.04(1)(b));
d)Of service of the documents required to be served under the FMC (Bankruptcy) Rules r.4.05 (FMC (Bankruptcy) Rules r.4.06(2));
e)A search of the National Personal Insolvency Index no earlier than the day before the hearing date of the petition (FMC (Bankruptcy) Rules r.4.06(4)); and
f)Of debt which the creditor still relies as owing (FMC (Bankruptcy) Rules r.4.06(4)).
Some of the requirements under the FMC (Bankruptcy) Rules overlap with those under the Bankruptcy Act.
In relation to the matters requiring formal proof the Court finds as follows:
a)The matters stated in the petition are supported by the:
i)Affidavit of Andrew Jones sworn 30 January 2012 accompanying the petition (Bankruptcy Act ss.47 and 52(1)(a), FMC (Bankruptcy ) Rules r.4.02). The bankruptcy notice was served on the respondent on 30 January 2012 at 7.45am; and
ii)Affidavit of Darrell Cunneen sworn 13 June 2012 attached to the Creditor’s Petition verifying paragraphs 1, 2 and 3 of the Creditor’s Petition; and
iii)Affidavit of Jemma Windrim sworn 15 June 2012 verifying paragraph 4 of the Creditor’s Petition;
b)The debt upon which the DCT relies is still owing (Bankruptcy Act s.52(1)(c));
c)The respondent debtor has committed an act of bankruptcy (Bankruptcy Act s.42(1)(a)) on 20 February 2012 pursuant to s.40(1)(g) of the Bankruptcy Act;
d)At the time the act of bankruptcy was committed, the respondent:
i)Was personally present in Australia; and
ii)Ordinarily resided in Australia (Bankruptcy Act s.43(1)(b));
e)The debt owed by the respondent is $298,656.60, being a sum more that $5,000.00 (Bankruptcy Act s.44(1)(a));
f)The debt of $298,656.60 is a liquidated sum, payable immediately (Bankruptcy Act s.44(1)(b));
g)The respondent, Peter Scioscia, failed to comply on or before 20 February 2012 with the requirements of a bankruptcy notice served on him on 30 January 2012 (Bankruptcy Act s.44(1)(c));
h)Searches of the records of this Court and the Federal Court have been made and no application has been made in either Court in relation to the Bankruptcy Notice;
i)The Bankruptcy Notice No. 278 of 2012 was served on the respondent, Peter Scioscia, by personally serving it on him;
j)That at least five days before the date fixed for the hearing of the petition the:
i)Petition (FMC (Bankruptcy) Rules r.4.05(a));
ii)A copy of the affidavit verifying the petition (FMC (Bankruptcy) Rules r.4.05(c)); and
iii)A copy of the affidavit of search of court records (FMC (Bankruptcy) Rules r.4.05(c)); and
iv)A copy of the affidavit of service of the Bankruptcy Notice (FMC (Bankruptcy) Rules r.4.05(d)).
Were served on the respondent, Peter Scioscia, personally; Affidavit of Andrew Jones sworn 29 June 2012;
k)The National Personal Solvency Index was searched on 10 October 2012 (the same business day the petition was heard) (FMC (Bankruptcy) Rules r.4.06(3)) and that details of references in that index to the respondent are before the Court (FMC (Bankruptcy) Rules r.4.06(3)(a));
l)A copy of the relevant extract of the Index is attached to the affidavit of search of Jemma Windrim sworn 10 October 2012 (FMC)(Bankruptcy) Rules r. 4.06(3)(b)(i)).
m)There is an affidavit of final debt of Darrell Cunneen sworn 10 October 2012, being a person with knowledge of the facts sworn the day of the hearing of the petition that the debt on which the applicant creditor relies is still owing (FMC (Bankruptcy) Rules r.4.06(3)(c)).
No consent to act as trustee has been signed.
Hearing 10 October 2012
The matter came before the Court on 10 October 2012 for hearing of the Creditor’s Petition. Ms A. Hussein solicitor, of Craddock Murray Neumann Lawyers, appeared for the DCT. The respondent debtor appeared in person.
In preparation of written reasons I have quoted from the submissions prepared by the parties. I have also referred to the Transcript of the hearing.
Respondent’s Submissions
In the respondent’s affidavit, sworn 9 August 2012, the respondent acknowledges the debt owed to the ATO. In this affidavit the respondent indicates that he was attempting to obtain funds to satisfy the debt. The respondent claims at [3] and [6] that he owns a quarter share of a property located at 254 Cowper Street Warrawong valued at approximately $117,500. The respondent did not seek to rely on the affidavit during proceedings.
The respondent submits that over the last two years he has been trying to negotiate with the Australian Tax Office (the “ATO”) to come to “agreement” to make a payment of $100,000 upfront (Transcript, p.2; l.20). The respondent states that he has had no explanation as to why the ATO will not accept his offer. The respondent claims that he has lodged a complaint with the ATO and has been waiting to hear of the outcome of that complaint (Transcript p.2; l.29). The respondent requested an adjournment of the hearing to seek answers from the ATO in regards to his complaint and to make arrangements to pay some of the debt.
The respondent made oral submissions that if a sequestration order was to be made against him there would be no financial gain for the ATO, as he claimed that the mortgage over the house is worth more than the house itself (Transcript, p.2; l.43). The respondent also made submissions about the implications on his future employment to keep his registration as a tax agent and financial planner if a sequestration order was made (Transcript, p.2; l.15). The respondent raised the issue of the effect of the sequestration order on his family. The respondent claims that he has made a reasonable offer to the ATO and that he is frustrated and would like some time to sit with the ATO and negotiate an arrangement.
It was noted that there was no Notice Stating Grounds of Opposition to Petition filed. The respondent claimed that he was unaware of the correct procedure and thought that the solicitor he had engaged would have dealt with it. The solicitor, David Brown, from Brown & Partners, filed a notice of intention to cease to act on 9 October 2012.
Applicant’s Submissions
Ms Hussein, appearing for the DCT, submits there was no reason to delay the hearing and sought to proceed with the hearing to obtain a sequestration order. Ms Hussein claims that at no stage of the proceedings had the respondent filed any further evidence disputing the debt, but had in fact, been aiming to settle to the debt with the applicant. Ms Hussein claims that in the respondent’s affidavit, sworn on 9 August 2012 that he was not seeking to dispute the debt, if anything he was trying to obtain funds to satisfy the debt.
In the applicant’s Outline of Written Submissions, the applicant sets out a chronology of events leading up to the hearing. The DCT submits that the respondent bears the onus of proof in demonstrating to the Court that he is able to pay his debt as and when they fall due: Re Poulson; Ex parte Hempenstall Bros Ltd (No 2) (1929) 1 ABC 54. In Sandell v Porter (1966) 115 CLR 666, Barwick CJ, with whom McTiernan and Windeyer JJ agreed, in considering the words in s.95 of the Bankruptcy Act 1924 (Cth) which was the predecessor to the current act, “unable to pay his debts as they become due from his own money” said at 670:
… It is the debtor’s inability, utilizing such cash resources as he has or can command through the use of his assets, to meet his debts as they fall due which indicates insolvency.
The applicant submits that a sequestration order will not ordinarily be made against a recalcitrant, but solvent debtor: Re Sarina: Ex Parte Wollondilly Shire Council (1980) ALR 266. However, in Trojan v Corporation of Hindmarsh (1987) 16 FCR 37 at 48, the Full Court held that:
…the principle laid down in the Sarina case would not necessarily be satisfied by a sterile demonstration of an ability to achieve a payment which was not in reality at all likely to be compelled. Section 52(2)(a) envisages a situation which will probably bear fruit in payment. It is not easy to see any other reason why the legislature saw fit to make a demonstration of ability to pay only a discretionary ground of dismissal of a petition, and not an absolute bar to its success.
The applicant claims that it is owed an amount of $286,206.59 by the respondent. The applicant submits that the asset that the respondent has disclosed, being the quarter share in the property located at Cowper Street, Warrawong, may be utilised in the payment of his debt, but the respondent’s liabilities exceed his assets. In Australia & New Zealand Banking Group Pty Ltd v Foyster [2000] FCA 400, his Honour Hely J noted:
…it is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in values. It must also b established that the assets are available to be realised and that they are capable of ready realisation.
The applicant claims that to date there has been no evidence produced as to the respondent’s solvency. The applicant submits that the respondent has failed to satisfy the debt and has provided every indication that he is unable to pay his debts as and when they fall due. The applicant claims that the amount owing to it is not capable of ready realisation by the respondent.
The applicant submits that the respondent has not established any reason why a sequestration order should not be made. There has been no sufficient cause for dismissal of the Creditor’s Petition established by the respondent. The applicant argues that on proof of the matters required by s.52 of the Bankruptcy Act, the Court will prima facie make a sequestration order against an insolvent estate. It is argued that it is for the debtor to persuade the Court that the public interest in dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations: Cain v Whyte (1933) 48 CLR 639 at 645 – 646 and 648.
The applicant argues that in considering what amounts to “other sufficient cause”, Burchett J in Re Svir; Ex parte Deputy Commissioner of Taxation (1998) 83 FCR 314 at 314 stated:
…a fundamental limitation imposed by the nature of the jurisdiction in bankruptcy… requires the Court to keep in mind, not only the interests of the individual parties before it in the particular case, but also the public interest, which may be adversely affected by the propping up of insolvency.
Consideration
On the third return date of these proceedings before a Registrar of this Court the parties sought referral to a judicial officer for a hearing. When the matter was called before me, both parties were represented and indicated that they sought a date for a formal hearing of the matter and it was agreed that 10 October 2012 was convenient to both parties. I also made the following directions:
1. Any further application for adjournment is to be supported by an affidavit setting out the facts and circumstances to be relied upon, to be filed and served by 8 October 2012;
2. The respondent is to file and serve any affidavits to be relied upon at the hearing of this matter on or before 8 October 2012.
On the day prior to the scheduled hearing Brown and Partners, who had previously been representing Mr Scioscia, filed in the Court Registry a notice of intention to cease to act dated 8 October 2012. Consequently at the hearing on 10 October 2012, Mr Scioscia appeared and indicated that he was representing himself. Ms Hussein, appearing for the DCT, indicated her instructions were to seek to proceed, however she understood that Mr Scioscia wished to dispute that course.
Mr Scioscia indicated that over the last two years he had been trying to negotiate some sort of deal with the ATO to both parties satisfaction. He indicated that a sequestration order would have dire implications on his occupation which is as an independent tax agent and financial planner and that bankruptcy would impact his registration. Mr Scioscia indicated that he was attempting to make part payment of his tax debt with an arrangement of periodic payments for the remainder. Mr Scioscia stated that he was attempting to make some sort of arrangement to continue to go forward and to continue to be a tax payer but that he had been unable to hold a meeting with the ATO and negotiate an acceptable arrangement.
I asked Mr Scioscia whether he was seeking a further adjournment of the proceedings and he indicated that he was. I indicated at the moment that the only material that had been filed was his affidavit dated 9 August 2012 and that there was no formal objection to the Creditor’s Petition or an application for adjournment. Mr Scioscia indicated that he was unaware of that situation because he had engaged a solicitor to represent him and he assumed that these steps would have been taken on his behalf. I note that there was no earlier application in respect of the Bankruptcy Notice and with the passing of time that option was now closed. In determining what course these proceedings should take, I note that Ms Hussein informed the Court that the amount owed to the DCT as at the date of the hearing was $286,206.59 and there is no dispute that the debt is still owing. This is confirmed in the affidavit of Darren Cunneen sworn 10 October 2012.
In the affidavit of Peter Scioscia sworn 9 August 2012, he sets out the steps that he was undertaking or intended to take to satisfy the outstanding debt. This affidavit was not objected to by Ms Hussein and is the only information before the Court addressing this issue. Mr Scioscia sets out three arrangements to raise the necessary funds:
Commercial property at [Cowper Street] Warrawong;
3. I hold a quarter share in the commercial property at [Cowper Street] Warrawong (“the Property”). My uncle Gerardo Scioscia holds half share in the property and my sister Rosa Isabella nee Scioscia holds the remaining quarter share in the Property.
4. The Property is held as tenants in common. Annexed herewith the marked “A” is a title search of the Property.
5. On 7 August 2012, I met with Steven Lazor Jovanovski and Jeffrey Simon Javanovski who are the current tenants of the Property (“the Tenants”).
6. The Tenants have agreed to acquire my sister’s and my share of the Property for $235,000.00 on the basis that they will share the Property with Gerardo Scioscia as tenants in common.
7. I have instructed James Isabella, solicitor, be draw up the contract for the sale of the Property and I anticipate exchange will occur shortly.
8. On 7 August 2012, my sister Rosa Isabella nee Scioscia agreed to pass on her share of the sale proceeds to myself and in turn to the Australian Taxation Office (“ATO”).
9. Once the property has been sold, I will receive $235,000, plus or minus adjustments and this will be paid to the ATO towards the satisfaction of the ATO debt.
My mother’s property at [First Avenue] South Warrawong
10. My mother, Angelina Scioscia, is the sole owner of the property at [First Avenue] South Warrawong (“my mother’s property”). Annexed herewith the marked “B” is a copy of the title search of my mother’s property.
11. Whilst I have not approached my mother as I was waiting to be sure that my sister would agree to transfer her quarter share of the Property, I now intend to asking my mother for a loan. I am completely confident that she will approve.
12. I am organising an appointment with a bank manager to draw up a reverse mortgage using my mother’s property as security for $70,000.00.
13 When the loan is approved, I will receive $70,000.00 towards the satisfaction of the ATO debt.
2012 Tax Return
14. I have almost completed my 2012 Income Tax Return (“ITR”) and am expecting a refund of close to $10,000.00 on the current figures.
15. Once the ATO has processed my 2012 ITR, the return will be offset against the tax debt.
16. I believe that the above arrangements will allow me to satisfy the ATO’s claim for the amount of $298,626.60.
In oral submissions Mr Scioscia indicated that he had made offers to the DCT over the last two years to make a payment of $100,000.00 upfront, but this has been unacceptable to the DCT. I note that there is no reference to this $100,000.00 in Mr Scioscia’s affidavit of 9 August 2012. Nor is there any issue raised disputing the quantum of the debt, except, that there is an amount of $12,450.01 that has been reduced from the outstanding amount due to the crediting of two lots of refunds of Mr Scioscia’s 2010/11 and 2011/12 tax refunds. The amount outstanding, according to the Affidavit of Debt sworn by Darrell Cunneen at [4], is $286,206.59. I believe on a fair reading of the material before the Court there is no indication that there is any error or technical ground with the Petition itself that would justify a further adjournment. Similarly, the proposed solution contained in Mr Scioscia’s affidavit of 9 August 2012, covering the steps that he proposes to take to raise funds to satisfy the debt are subject to a number of provisions; that are either not yet achieved or, in the case of the reverse mortgage over his mother’s home, have not been raised with her. Finally the refund from the 2011/201212 taxation return is only an estimate with the 2012 return not yet lodged.
During his oral submissions, Mr Scioscia made no reference to what had been achieved by him since 9 August 2012 (the date of his affidavit) to action these proposed steps to obtain funds to satisfy the ATO debt. I acknowledge that Mr Scioscia claims that he has been waiting a considerable time for a response from the ATO, but this debt has been quantified initially in a judgment obtained in the District Court of NSW on 18 August 2011, with additional amounts added up to 20 February 2012 and, on Mr Sciosica’s own admission, the debt has been outstanding for over two years. In these circumstances, I do not believe that there are sufficient grounds to grant an adjournment and that the matter should proceed.
I accept the written submission made by Ms Hussein that Mr Scioscia deposes that he owns a quarter share of the Cowper Street property valued at approximately $117,500.00, and that is the only asset Mr Scioscia has disclosed that may have been utilised in the payment of his debts. All the other aspects of his proposed fund raising are provisional, are yet to eventuate and are without projected dates. Ms Hussein referred the Court to the decision in Australia & New Zealand Banking Group Ltd v Foyster [2000] FCA 400, where Hely J noted at [17]:
…it is not sufficient for the respondent simply to establish that he has assets which exceed his liabilities in values. It must also b established that the assets are available to be realised and that they are capable of ready realisation. …
Mr Scioscia’s affidavit prepared on 9 August 2012 sets out a proposed course he was pursuing, however, at the hearing on 10 October 2012 there was no reference to any progress made or confirmations obtained from the other asset holder’s that were contributing to Mr Scioscia’s repayment plan, for example, his mother.
Ms Hussein informed the Court that Mr Scioscia has failed to satisfy the debt owed to the ATO, and from his statements to the Court has indicated that he is unable to pay his debts as and when they fall due, and the asset disposal plan is dependent on assets that are not capable of ready realisation. Consequently, Mr Scioscia has not been able to and will not, in the foreseeable future, be able to pay his debts as and when they fall due. It is for Mr Scioscia to persuade the Court that the public interest in dealing with the insolvent debtor and the rights of individual creditors are outweighed by other considerations: Cain v Whyte (supra) at 645 – 646 and 648, which he has failed to achieve
As set out above the formal requirement for the issuance of a sequestration order has been met and the order should be made.
I certify that the preceding thirty-five (35) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM
Date: 1 November 2012
0
5
3