El-Sayed v Golan
[2016] FCCA 2875
•27 October 2016 (ex tempore)
FEDERAL CIRCUIT COURT OF AUSTRALIA
| EL-SAYED & ANOR v GOLAN | [2016] FCCA 2875 |
| Catchwords: BANKRUPTCY – Application for review of sequestration order – Bankruptcy Notice – whether amount of debt owing overstated in Notice – judgment debt – whether debtors obligation to withhold PAYG payments from judgment debt affected amount owing for purpose of Bankruptcy Notice – application dismissed. |
| Legislation: Taxation Administration Act 1953(Cth) Bankruptcy Act 1966 (Cth), ss.41(5), 52, 52(1) & (2) Federal Circuit Court Act of Australia 1999 (Cth), s.104(2) |
| Cases cited: Walsh v Deputy Commissioner of Taxation (1984) 156 CLR 337 Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120 |
| First Applicant to the Review: | ALI EL-SAYED |
| Second Applicant to the Review: | AMEL EL-SAYED |
| Respondent Creditor: | KAMAL GOLAN |
| File Number: | ADG 232 of 2016 |
| Judgment of: | Judge Heffernan |
| Hearing date: | 27 October 2016 |
| Date of Last Submission: | 27 October 2016 |
| Delivered at: | Adelaide |
| Delivered on: | 27 October 2016 (ex tempore) |
| Settled on: | 14 November 2016 |
REPRESENTATION
| Counsel for the Applicants to the Review: | Mr I Thomas |
| Solicitors for the Applicants to the Review: | Grant Legal |
| Counsel for the Respondent Creditor: | Mr S Thomas |
| Solicitors for the Respondent Creditor: | Marshalls Solicitors |
ORDERS
The application for review of the sequestration orders made by Registrar Colbran on 20 September 2016 is dismissed.
The applicants to the review do pay the respondent creditor’s costs.
The respondent creditor’s costs be paid out of the estate of the applicants to the review and have the same priority as the costs of the petition.
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT ADELAIDE |
ADG 232 of 2016
| ALI EL-SAYED |
First Applicant to the Review
| AMEL EL-SAYED |
Second Applicant to the Review
And
| KAMAL GOLAN |
Respondent Creditor
REASONS FOR JUDGMENT
(Reasons settled from transcript)
This is an application filed on 29 September 2016 by Mr Ali El-Sayed and Mr Amel El-Sayed for review of the sequestration orders made against them by Registar Colbran on 20 September 2016. Those orders also fixed the applicant creditor’s costs at $7,653. The relevant act of bankruptcy was a failure to comply with a Bankruptcy Notice demanding payment of $65,000.
The hearing before me proceeded as a hearing de novo. The applicants to the review do not take issue with the fact of the debt and accept that they were served with both the Creditor’s Petition and the Bankruptcy Notice. The applicants to the review oppose the making of the sequestration orders because they contend that the amount of the debt stated in the Notice is incorrect.
It is common ground that the debt in question arose under a judgment of the Industrial Relations Court of South Australia on 3 September 2015. That judgment was in favour of the creditor, Kamal Golan, in the amount of $90,000. The terms of the judgment are set out in the orders annexed as annexure AE1 to the Affidavit of Amel El-Sayed dated 16 August 2016. The terms of the judgment were as follows:
“By consent, I make Orders in the following terms:
1.The Respondent, Aladdin Enterprise Pty Ltd, Amel El-Sayed and Ali El-Sayed pay the Applicant the amount of $90,000 gross for underpayment of wages arising under the Applicant’s employment contract as follows:
1.1$25,000 gross within 14 days of today’s date.
1.2Ten instalments of $6,500 gross each fortnight thereafter.
2.The Respondents deduct from each of the instalments referred to in 1.1 and 1.2 of these orders the PAYG income tax instalment that they are required to deduct by the laws relating to income tax and remit those PAYG income tax instalments to the Australian Taxation Office.
3.Within 14 days of each payment in 1.1 and 1.2, the Respondents provide the Applicant with PAYG Payment Summaries confirming the amount of the income tax instalment that has been remitted to the Australian Taxation Office.
4.The Respondents pay $1,835.24 directly into the Applicant’s BT Superannuation account within 28 days of today’s date.”
In his Affidavit of 25 August 2016, the respondent to this review application, acknowledges that he received the sum of $25,000 by way of electronic funds transfer to the trust account of his previous solicitors. No payment notification was received and no PAYG statement followed the payment. It is not disputed by the applicants to the review that no other payment has been made by them to the creditor.
The creditor alleges that he has not received any advice of withholding income tax from the $25,000, and has not received his PAYG summary for the financial year ending 30 June 2016. He states that he has not received any notification of withholding any taxation amounts from what remains of the judgment sum of $65,000.
The Bankruptcy Notice is dated 19 April 2016. The Notice identifies the judgment amount as being $90,000, indicates that $25,000 has been paid towards the debt, and identifies the total debt amount owing being $65,000.
Applicants’ submissions
In his submissions for the review applicants, Mr I Thomas asserts that the Notice on which the Creditor’s Petition was based overstated the amount payable and was, for that reason, invalid. The overstatement arises because the Notice seeks payment of gross amounts, whereas the review applicants are required by law to withhold amounts in respect of PAYG payments.
Had the applicants to the review paid the full amount claimed by the applicant creditor, they would have committed a criminal offence under the Taxation Administration Act 1953 (Cth). I shall refer to that Act as ‘the TAA’.
Mr I Thomas points to a line of established authority which holds that a Bankruptcy Notice will be invalid if the total amount due specified in the Notice exceeds that to which the creditor is entitled. He referred me to the cases of Walsh v Deputy Commissioner of Taxation[1] and Seovic Civil Engineering Pty Ltd v Groeneveld.[2] Pursuant to s.41(5) of the Bankruptcy Act 1966 (Cth) (‘Bankruptcy Act’), if the sum specified in the Notice exceeds the amount to which the creditor is entitled, the Notice itself is invalid.[3]
[1] (1984) 156 CLR 337.
[2] (1999) 87 FCR 120.
[3] Skouloudis v St George Bank Ltd (2008) 173 FCR 236.
The applicants to the review submit that they complied with the requirement to give notice to the creditor, that they disputed the validity of the Notice on the grounds of the misstatement. The respondent to this application does not dispute that such notice was given to them.
Mr I Thomas submitted that as paragraph 2 of the judgment expressly requires the respondents to deduct the PAYG instalments from the amounts to be paid to the creditor, the applicants to the review are not liable to pay to the respondent to this review the amount of $65,000. The withholding of the PAYG instalments would inevitably mean that the debt actually owed to the creditor was a lesser amount.
Counsel referred me to s.12-35 of Schedule 1 of the TAA. That section says:
“12-35 Payment to employee
An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).”
For that reason, the applicants to the review submitted that they had a statutory obligation not to pay the creditor the gross amount of $65,000 and the Bankruptcy Notice overstates the amount payable.
Respondent’s submissions
For the respondent to the review, Mr S Thomas referred the Court to the authority of David Cassaniti v Commissioner of Taxation[4] and advanced the argument that withholding PAYG payments in the context of the TAA means the holding back of something due to the employee which has the effect of reducing a gross amount to a net amount paid to the employee.
[4] [2010] FCA 641.
Mr S Thomas directed my attention to the following passages from Cassaniti’s case:
“… There must be a process by which this withholding takes place. It may be reflected in actual funds held by the payer on behalf of the employee pending payment to the Commissioner; on the other hand, and more usually, it may only be reflected in the wage records and books of account of the payer as an accounting entry.”[5]
“Where in the usual case the withholding process is represented only by accounting entries the question whether a legitimate process of withholding has ensued will depend upon a close examination of those books and records and the surrounding circumstances to see whether it may be inferred from those records and circumstances that a withholding has occurred. At one end of the spectrum, a mere journal entry in the absence of other evidence may not be sufficient evidence, having regard to the surrounding circumstances, that there has been a payment of salary and wages and a withholding from that payment. …”[6]
“Where there is a controversy about the occurrence of a withholding the surrounding circumstances may either support or detract from the drawing of an inference that a withholding was in fact made. There are a number of reporting requirements where an employer makes a PAYG withholding. …”[7]
[5] Ibid at [163].
[6] Ibid at [165].
[7] Ibid at [167].
It was submitted that Cassaniti’s case, inter alia, stands for the proposition that a withholding cannot be taken to have been made by virtue of a mere liability to pay. For that reason, he submitted, given that no part of the $65,000 has been paid to the applicant creditor, there has been no withholding and, it follows, no notice of a withholding. There has simply been, he submitted, no transaction between the parties with respect to the outstanding sum.
He submitted that there is only one debt in the amount of $65,000. There is not a separate debt payable to the Commonwealth, as the obligation to pay the Commissioner of Taxation only arises on withholding. The debt to the applicant creditor remains the $65,000 gross and remains so until the withholding. For that reason, he submitted, the amount identified in the Bankruptcy Notice is not misstated.
I will identify a couple of general principles with respect to applications for review of sequestration orders. The applicants are applying pursuant to s.104(2) of the Federal Circuit Court Act of Australia 1999 (Cth). As I have said, a review under that section is a hearing de novo. I remind myself that that means that an applicant for review does not bear an obligation to demonstrate an error on the part of the Registrar and does not need to demonstrate that the Registrar’s exercise of discretion miscarried in the sense described in House v The King.[8]
[8] (1936) 55 CLR 499.
When a review of this kind is sought of a sequestration made under s.52 of the Bankruptcy Act, the judge who hears the application must hear the petition afresh and be satisfied of those matters referred to in s.52 of the Bankruptcy Act. For that reason, the judge must be satisfied with the proof of the matters stated in the Petition, the service of the Petition, the fact of the debt on which the petitioning creditor relies is still owing, and must exercise afresh the discretions conferred by s.52(2).
I pause at this point to note that the sole issue which is raised on this review application is the issue of the misstatement of the debt. There is no issue taken with respect to the service of the Petition or, generally, the matters stated in the Petition, with the exception of the debt amount.
So, to summarise, I must consider two things. The first is whether the creditor has proved the matters specified in s.52(1) of the Act. If I am satisfied that they have been proven, I must consider whether the applicants to the review can satisfy the court of the matters set out in s.52(2) of the Act and whether I should, in the exercise of my discretion, dismiss the Creditor’s Petition.
I am not satisfied that the amount of $65,000 identified in the Bankruptcy Notice has been overstated. The debt was the gross amount awarded to the applicant creditor in the Industrial Relations Court of South Australia, minus the $25,000 already paid. If the debtors had been in any doubt as to the ramifications of their withholding PAYG payments at the time of the Bankruptcy Notice, it was open to them to make arrangements to the creditor’s satisfaction of the settlement of the debt.
Such arrangements could clearly have included a confirmation of the creditor’s understanding that the relevant payments were required by law to be withheld. The obligation to pay the amount withheld to the Commonwealth only arises at the point the withholding occurs. At the time of the Bankruptcy Notice, there had been no withholding and the applicant creditor was owed the gross amount of $65,000. That amount would inevitably have been reduced by the withholding of PAYG payments.
Without wanting to reduce my reasoning to a ‘chicken or the egg’ formula, the amount ultimately to be withheld only arises because of the gross debt for unpaid wages in the amount of $65,000, and the quantum of the amount withheld would be directly referable to that amount by virtue of the withholding schedules. As I have said, there was only one debt, in the amount of $65,000 and the debt comes first.
In satisfying the debt, the debtors are required to withhold an amount for PAYG purposes and forward that amount to the Commonwealth. Once they have done so, the debt is extinguished, but the liability to pay the Commonwealth amounts properly withheld under the TAA does not alter the fact that the debt was correctly identified in the Bankruptcy Notice.
I have considered the materials relied on by the applicants to the review and, in particular, the Affidavit of Amel El-Sayed dated 16 August 2016. I have considered the materials relied on by the respondent to the review, including the Creditor’s Petition, the Affidavits of Service of the Bankruptcy Notices, and the creditor’s submissions, and the Affidavit of Kamal Golan dated 25 August 2016. I have, of course, given consideration to the outlines of submission filed by both counsel.
I am satisfied that the matters of which proof is required under s.52(1) of the Bankruptcy Act have been established by the applicant, namely, the matters stated in the Petition, the service of the Petition, and the fact the debt or debts on which the petitioning creditor relies is still owing. I turn to a consideration of s.52(2), and I remind myself that that says if the court is satisfied by the debtor that:
“(a) he or she is able to pay his or her debts; or
(b)that for other sufficient cause a sequestration order ought not be made –”
then I may dismiss the petition.
The applicants to the review have not made any submission or introduced any evidence of their ability to pay the debt. I am not satisfied they are able to pay their debts or that there is other sufficient cause to dismiss Mr Golan’s Petition.
The application is dismissed.
I certify that the preceding twenty-nine (29) paragraphs are a true copy of the reasons for judgment of Judge Heffernan
Date: 14 November 2016
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