Evans v Deputy Commissioner of Taxation

[2016] FCCA 3079

FEDERAL CIRCUIT COURT OF AUSTRALIA

EVANS v DEPUTY COMMISSIONER OF TAXATION [2016] FCCA 3079

Catchwords:
BANKRUPTCY – Application for annulment of bankruptcy – relevant considerations.

Legislation:

Bankruptcy Act 1966, s.153B

Bankruptcy Regulations 1996
Federal Circuit Court (Bankruptcy) Rules 2006, r.4.05

Cases cited:
Yang v L & H Group (2015) 13 ABC(NS) 269

Applicant: PETER RONALD EVANS

Respondent: DEPUTY COMMISSIONER OF TAXATION

File Number: SYG 1226 of 2016

Judgment of: Judge Cameron

Hearing date: 1 September 2016

Date of Last Submission: 1 September 2016

Delivered at: Sydney

Delivered on: 1 September 2016

REPRESENTATION

The Applicant appeared in person

Solicitors for the Respondent: Mr K. Metlej of Craddock Murray Neumann

Solicitors for the Trustees: Mr D. Edney of Polczynski Lawyers

ORDERS

1. The application be dismissed.

2. The applicant pay the respondent’s costs of the proceedings.

3. The applicant pay the trustees’ costs of the proceedings, such costs to be paid out of the bankrupt estate of Peter Ronald Evans.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 1226 of 2016

PETER RONALD EVANS

Applicant

And

DEPUTY COMMISSIONER OF TAXATION

Respondent

REASONS FOR JUDGMENT

Introduction

1. The applicant, Mr Evans, is a bankrupt whose estate was sequestrated on 11 March 2015 by order of Registrar Ng in proceeding SYG 2669/2014 (“creditor’s petition proceeding”). The sequestration order was made on the basis of a creditor’s petition filed by the respondent (“Deputy Commissioner”) on 25 September 2014. Subsequent to the sequestration of Mr Evans’s estate, Fabian Kane Micheletto and Michael Carrafa were appointed as joint trustees of his estate. On 17 May 2016 Mr Evans commenced this proceeding seeking an annulment of his bankruptcy under s.153B of the Bankruptcy Act 1966 (“Act”) on the basis that he had not been properly served with the creditor’s petition and had been unfairly prejudiced by the sequestration of his estate.

2. For the following reasons, the application will be dismissed.

Background facts

Bankruptcy notice

1. On 19 July 2013 the Deputy Commissioner obtained a judgment against Mr Evans in the District Court of NSW in the amount of $571,141.99 (“judgment debt”) in respect of outstanding tax liabilities.  On the application of the Deputy Commissioner, on 14 August 2013 the Official Receiver issued a bankruptcy notice against Mr Evans based on a total debt of $574,564.93, being the judgment debt and $3,422.94 in interest.  The bankruptcy notice required Mr Evans to pay the debt set out in the notice within twenty-one days after the service of the notice on him.

2. Presumably because of difficulties in serving Mr Evans within the six months prescribed by the Bankruptcy Regulations 1996, on 24 February 2014 the Deputy Commissioner obtained from the Official Receiver a notice extending the time within which the bankruptcy notice could be served up to 14 August 2014.  On 20 May 2014 the Deputy Commissioner also obtained substituted service orders from a Registrar of this Court.  The substituted service orders noted that if the orders were complied with, the bankruptcy notice would be deemed to have been served on Mr Evans on 20 June 2014.  The bankruptcy notice was then amended to require Mr Evans to pay the debt set out in the notice within twenty-one days after 20 June 2014.  Notwithstanding the substituted service orders, Mr Evans was ultimately able to be served personally with the bankruptcy notice and the notice of extension of time on 10 June 2014.  Mr Evans was also served with the bankruptcy notice by the means provided for in the substituted service orders prior to 20 June 2014.

Creditor’s petition proceeding

1. The debt alleged in the bankruptcy notice was not paid and Mr Evans did not make an application to extend the time to comply with the bankruptcy notice or to have it set aside.  As a result, on 25 September 2014 the Deputy Commissioner commenced the creditor’s petition proceeding claiming that Mr Evans owed him $571,670.41, being the judgment debt and interest less payments made by Mr Evans or credits allowed.  The act of bankruptcy asserted in the creditor’s petition was Mr Evans’s non-compliance with the bankruptcy notice. 

2. On the application of the Deputy Commissioner, on 2 January 2015 Registrar Segal made orders dispensing with the requirement for personal service of the creditor’s petition.  The orders required a sealed copy of the creditor’s petition, a copy of each affidavit verifying the creditor’s petition, a copy of any affidavit of service of the bankruptcy notice and a copy of any consent of a registered trustee to be served on Mr Evans by:

   a)handing them to any person apparently over the age of sixteen at Mr Evans’s address in Hardys Bay, on the Central Coast of New South Wales (“Hardys Bay address”), but, if that was not possible, by leaving them in the letterbox or affixing them to the front door in an envelope addressed to Mr Evans; and

   b)by sending them by prepaid ordinary post addressed to Mr Evans at the Hardys Bay address.

3. The orders also required a text message to be sent to Mr Evans’s mobile telephone number advising him that a creditor’s petition had been filed, that documents had been sent to or left at the Hardys Bay address and advising him of the date of the hearing of the petition.  The creditor’s petition was to be deemed to have been served on Mr Evans twenty-eight days after service had been effected in accordance with the orders. 

4. In the creditor’s petition proceeding the Deputy Commissioner filed an affidavit of Clinton Davies sworn on 29 January 2015 in which Mr Davies deposed that he had served the creditor’s petition on 22 January 2015 by placing it in a sealed envelope addressed to Mr Evans and affixing it to the front door of the Hardys Bay address, after it had not been possible to leave it there with a person over the age of sixteen years.  The Deputy Commissioner also filed an affidavit of Tania Payne sworn on 9 February 2015 which deposed to the creditor’s petition having been sent to Mr Evans’s address by prepaid post on 16 January 2015 and an affidavit of Khaled Metlej sworn on 11 February 2015 which deposed to a text message having been sent to Mr Evans on 3 February 2015.

5. As already noted, on 11 March 2015 Registrar Ng made a sequestration order against Mr Evans.  Mr Evans did not appear in court on that occasion. 

Application to annul bankruptcy

Evidence

Mr Evans

1. Mr Evans relied on two affidavits sworn on 17 May 2016 and 29 August 2016 respectively.  He also relied on an affidavit of 12 July 2016 identifying the parties upon whom he had served a copy of the application to annul his bankruptcy. 

Service of creditor’s petition

1. Mr Evans deposed that he had not been served with the creditor’s petition.  In that connection, he deposed that on 14 January 2015 he left Australia for Lebanon and did not return until 7 July 2015.  Mr Evans deposed that he had lived with his mother at the Hardys Bay address referred to in the substituted service orders and had been in frequent contact with her while he was overseas.  He deposed that if he had had any documents delivered to him she would have told him but she had not at any stage mentioned that documents had been served at the address.

2. Mr Evans deposed that on his return to Australia on 7 July 2015 he did not find any documents waiting for him.  He deposed that it was not until 9 July 2015 when he visited his post office box that he became aware of the substituted service orders.  Mr Evans deposed that he also did not receive a text message while overseas because he had not had international roaming and had used a local sim card.

3. Mr Evans deposed that the failure to serve him with the creditor’s petition meant that he had been denied an opportunity to reach a satisfactory payment arrangement with his creditors which might have avoided him being made bankrupt. 

Effect of bankruptcy

1. Mr Evans deposed that he had been the director of a number of registered companies but, as a result of his bankruptcy, his Australian Business Number, his registration as an auditor and his directorships had been cancelled.  Mr Evans deposed that those actions had resulted in contracts to which he was party and which had been executed prior to his bankruptcy becoming voidable.  He estimated that the total value of those contracts was US$1 million.  Mr Evans deposed that since he had been made bankrupt, he had only been able to secure overseas employment on the condition of him being able to settle his matter with the Deputy Commissioner.  He deposed that the Deputy Commissioner had refused his offer to settle the matter and so he was unable to secure the job.  He deposed that if he had obtained the employment then he would have been able to pay his primary debt to the Deputy Commissioner of $200,967 and would have been able to make payments to his other creditors.  Mr Evans deposed that he could not undertake any further income producing activities and relied on a Centrelink pension, which had substantially impaired his ability to pay his debts. 

2. At the hearing of this application Mr Evans gave oral evidence and conceded in cross-examination that none of the contracts to which he had referred had been annexed to his affidavits, their parties identified or the values of those contracts disclosed.  He said that the contract which he had recently negotiated involved a party in Lebanon but no details of that party or the value of the contract were provided in his evidence.  Mr Evans also said that he did not have $1 million at the time he was made bankrupt although he could have presumably earned that if the contracts had remained on foot. 

3. Mr Evans additionally deposed that the effects of his bankruptcy, together with his mother’s death on 18 July 2015, had led him to become depressed and hypertensive. 

Assets and liabilities

1. Mr Evans deposed that he had not completed a statement of affairs because he considered that it would be premature to do so before this proceeding was dealt with.  In relation to his assets, Mr Evans referred to his deceased mother’s estate and to issues concerning whether he might have a beneficial interest in it.  In that connection, on 15 April 2016 Kunc J in the Supreme Court of NSW found that there was a serious question to be tried as to whether, on the proper construction of Mr Evans’s mother’s will, the beneficial interest in her estate had been left to Mr Evans.  Mr Evans deposed that while a freezing order had been made in relation to his mother’s estate, the applicant for the order, who was one of his creditors, had allowed the order to lapse on 25 May 2016. 

Deputy Commissioner

1. For his part, the Deputy Commissioner filed an affidavit of Pamela Comty sworn on 12 August 2016.  Ms Comty is an employee of the Australian Taxation Office.  She deposed that Mr Evans still owed the $571,670.41 set out in the creditor’s petition and, in addition to that amount, had accumulated a further $69,919.73 in taxation-related liabilities which were due to the Deputy Commissioner.

Trustees

1. On 6 May 2016 Mr Micheletto and Mr Carrafa were appointed as the joint and several trustees of Mr Evans’s bankrupt estate.  Prior to their appointment, the Official Trustee had been the trustee.  In an affidavit affirmed on 25 August 2016, Mr Micheletto deposed that his review of the Official Trustee’s file indicated that on 19 March 2015 the Official Trustee had sent a letter to Mr Evans notifying him of his bankruptcy and requiring him to provide a completed statement of affairs.  On 6 July 2015 the Official Trustee sent a further letter to Mr Evans requiring him to provide a completed statement of affairs or provide a satisfactory explanation for his failure to do so.  Mr Micheletto deposed that the Official Trustee’s files recorded that Mr Evans did not reply to any of the letters sent to him.

2. Mr Micheletto deposed that on 9 May 2016 he instructed Jessica Powell, an accountant in his employ, to telephone Mr Evans.  He deposed that Ms Powell had told him that Mr Evans did not answer her call and it was not possible for her to leave a voicemail message.  On 12 May 2016 Mr Micheletto sent a letter to Mr Evans.  The letter advised Mr Evans that Mr Micheletto and Mr Carrafa had been appointed as the trustees of his estate and advised him that he was required to provide documents and information to them, including a statement of affairs.  Mr Micheletto deposed that he had not received a response to that letter.  He deposed that on 14 June 2016 he and one of his employees had attempted to telephone Mr Evans but Mr Evans did not answer the call.  Mr Micheletto deposed that Mr Evans had also failed to comply with an undertaking he had given to the Court on 15 July 2016 to file a statement of affairs.

3. Mr Micheletto deposed that, based on the information he presently had, Mr Evans had seven creditors, including the Deputy Commissioner, to whom he owed, in total, $1,023,277.  He deposed that those alleged debts had not yet undergone any formal adjudication.  Mr Micheletto deposed that he did not hold any assets in Mr Evans’s estate but was investigating whether Mr Evans has a potential interest in his deceased mother’s estate.  In that connection, Mr Micheletto deposed that as a result of Kunc J’s judgment of 15 April 2016 he suspected that Mr Evans was beneficially entitled to his mother’s deceased estate.  He deposed that in order to further investigate the matter he had filed an application for summonses to examine Mr Evans and other persons but the summons had not yet been issued. 

4. Mr Micheletto deposed that due to a lack of information he was unable to report further on Mr Evans’s examinable affairs.

Consideration

1. Section 153B of the Act relevantly provides:

   153B     Annulment by Court

   (1)If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor’s petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.

   …

2. The questions posed by s.153B are:

   a)whether the sequestration order ought not to have been made, in the sense that the Court was bound to not make the order; and

   b)regardless of an affirmative answer to the first issue, whether in the exercise of discretion the Court considers it appropriate to not order an annulment.

3. Turning to the first of those questions, Mr Evans’s argument is that he was not served with the creditor’s petition and, in any event, could have paid his debts. By virtue of Registrar Segal’s order of 2 January 2015, the creditor’s petition is deemed to have been served twenty-eight days after the latest of the dates when it was sent to or affixed to the Hardys Bay address and an SMS message sent. The last of those events occurred on 3 February 2015, and twenty-eight days from then was 3 March 2015. The sequestration order was made on 11 March 2015, which was after the expiry of the five-day notice period prescribed by r.4.05 of the Federal Circuit Court (Bankruptcy) Rules 2006. 

4. The requirements for service were satisfied and the other requirements for the making of a sequestration order were, it appears clear from my review of the materials, met.  In those circumstances, I am not persuaded that the sequestration order ought not to have been made.

5. Further in that connection, the material which Mr Evans has placed before the Court does not demonstrate that he was solvent on 11 March 2015.  His evidence of contracts said to have been in place did not go so far as to say that he had, at the relevant time, assets equal to or exceeding his debts.  Indeed, Mr Evans’s submission to the Court was that he could have made a significant but unquantified contribution to his debts, not that he could have discharged them.  There is, therefore, no basis to doubt the correctness of Registrar Ng’s decision by reference to questions of Mr Evans’s solvency. 

6. Turning to the second question, partly for the reasons just given, I do not think that even if the sequestration order ought not to have been made, a discretionary annulment would be warranted.  The contracts referred to by Mr Evans, whose parties and values were not identified in oral evidence or demonstrated by any documentary evidence, were not shown to have been sufficient to discharge Mr Evans’s debts if they had remained on foot.  His evidence was that they are now void or voidable and, whichever it is, of no value.  Mr Evans made it plain that at present his only income is a social security benefit. 

7. It is apparent that Mr Evans is not solvent, a matter of significance to the exercise of the relevant discretion. 

8. I do also note that other considerations may be relevant to the exercise of the discretion, as Beach J made clear in Yang v L & H Group (2015) 13 ABC(NS) 269. Of particular relevance in this case is Mr Evans’s failure to supply his trustees with a statement of affairs, notwithstanding his undertaking to the Court on the last occasion to do so. It also seems that he has failed to co-operate with his present and former trustees. In the absence of such co-operation, there is no real evidence, other than Mr Evans’s uncorroborated assertions, that he has financial prospects such as to provide a basis to find that it would be just to annul his bankruptcy. In that connection, as already noted, I am not persuaded by Mr Evans’s evidence that he had contracts sufficient to have discharged his liabilities.

9. I further note that although the sequestration order was made on 11 March 2015, Mr Evans did not seek its annulment until he filed the present application more than fourteen months later.  It also appears from the affidavit of the trustee, Mr Micheletto, that a number of Mr Evans’s possible creditors have not been notified of the present proceeding and, because Mr Evans has not filed a statement of affairs, it cannot be known at this point whether there are further creditors.  But that latter circumstance is Mr Evans’s fault.  It would not be a proper exercise of discretion to annul Mr Evans’s bankruptcy without those parties having had the opportunity to address the Court.

10. For those reasons, the application will be dismissed.

I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of Judge Cameron

Date: 29 November 2016