HESHMATI v BURNESS

[2012] FMCA 1097

FEDERAL MAGISTRATES COURT OF AUSTRALIA

HESHMATI v BURNESS [2012] FMCA 1097

BANKRUPTCY – Review of decision of trustee in bankruptcy – condition on foreign travel by bankrupt – whether bankrupt should be required to pay arrears of income contributions – prospects of payments from overseas and return to Australia if condition removed – no error in trustee’s decision – decision not unjust or inequitable or wrong – application dismissed.

Bankruptcy Act 1966 (Cth), ss.77(1)(a)(ii), 139L, 139P, 139R, 178, 272(1), 272(2)

Dunwoody v Official Receiver [2005] FMCA 1634
Gu v Pascoe [2006] FMCA 367
Heshmati v Paul Burness and Morgan Lane [2012] FMCA 884
Hill v Piscopo [2007] FMCA 814
Luna v Pattison (2004) 206 ALR 587, [2004] FMCA 237
Re Hicks; Ex parte Lamb (1994) 217 ALR 195
Re Tyndall; Ex parte Official Receiver (1977) 30 FLR 6, (1997) 17 ALR 182

Applicant: BIJAN HESHMATI

Respondent: PAUL ANDREW BURNESS

File Number: SYG 2345 of 2012

Judgment of: Smith FM

Hearing date: 16 November 2012

Delivered at: Sydney

Delivered on: 16 November 2012

REPRESENTATION

Counsel for the Applicant: Applicant in person

Counsel for the Respondent: Ms S Nash

Solicitors for the Respondent: Sally Nash & Co

ORDERS

1. The application is dismissed. 

2. The Court notes that the costs incurred by the respondent in these proceedings are costs incurred in the administration of the bankrupt estate. 

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT SYDNEY

SYG 2345 of 2012

BIJAN HESHMATI

Applicant

And

PAUL ANDREW BURNESS

Respondent

REASONS FOR JUDGMENT

(revised from transcript)

1. This judgment explains why I have decided to refuse an application by Dr Heshmati for review of conditions attached by his trustee in bankruptcy, Mr Burness, to a consent to travel outside Australia. 

2. Dr Heshmati is an Iranian qualified neurosurgeon who achieved recognition of his professional medical qualifications at a non‑specialist level in Australia, and has gained non-permanent employment from an area health authority in New South Wales.  He suffered the misfortune of becoming addicted to gambling, and incurred a large debt which led to his bankruptcy in 2007.  A sequestration order was made on 24 May 2007, and Mr Burness was appointed co‑trustee of Dr Heshmati’s bankrupt estate. 

3. The extended course of administration since that time is only shown in somewhat confusing fragments of correspondence filed by both parties in the present matter.  In short, Dr Heshmati’s bankruptcy has been extended until 2015 as a result of objections lodged by Mr Burness arising from Dr Heshmati’s failure fully to meet his assessed liabilities to make contributions from his income since becoming bankrupt. 

4. The present matter concerns Mr Burness’ refusal to permit Dr Heshmati to travel overseas to take up proposed temporary employment in his profession as a neurosurgeon in Iran. The decision was most recently recorded in a letter dated 21 September 2012. Dr Heshmati now asks the Court to review the decision pursuant to s.178 of the Bankruptcy Act 1966 (Cth). In particular, Dr Heshmati asks the Court to review and rescind the imposition of two conditions on his proposed travel, which are found in paragraphs (a) and (b) of the letter. The full body of the letter is:

   I refer to your request for permission to travel dated 21 September 2012.  

   As previously advised Section 272(2) of the Bankruptcy Act 1966 (“the Act”), states that a Trustee may impose written conditions on the consent to a bankrupt’s travel overseas. Pursuant to this section, permission has been granted for you to travel, subject to the following conditions:

   a.Pay in full your current outstanding income contribution liability in the amount detailed in our letter of 22 July 2011 in the amount of $129,254.23, being $176,776.33 less payments of received under the Garnishee of $47,552.10 since that date. 

   b.Pay in full the amount of $16,315.84 owed as per my letter dated 9 September 2010 (copy enclosed);

   c.Provide a copy of your itinerary once your travel arrangements have been confirmed for my approval, including your intended destination, accommodation and contact details whilst overseas;

   d.Provide details of how your travel will be financed;

   e.Provide details on the job offer including the letter of offer;

   f.That travels overseas is limited to a maximum period of six (6) months, which may be reviewed upon receipt of details of your job offer;

   g.That you will return within two (2) weeks of the completion of your job contract;

   h.That you notify me of any changes to your approved itinerary within two days of any such change. 

   i.That you return your passport to my office within two business days of your return to Australia. 

   I have imposed these conditions because of the conditions: 

   ·The proposed travel may hamper your ability to pay the outstanding liabilities into your estate and therefore hamper the administration of the bankrupt estate; and

   ·I consider that you may not return to Australia. 

   If you agree to the above conditions, I request that you sign the acknowledgement below and return same to my office within the next 7 days.

   Please contact me on [(03) telephone number] or [email address] should you have any enquiries. 

5. To understand Dr Heshmati’s argument as to why Mr Burness’ decision was incorrect and should be rescinded by the Court, it is necessary to sketch briefly some events in the course of the administration of the bankruptcy which I have gleaned from the evidence before me. In short, over the years since 2007 Mr Burness has made annual income contribution assessments for the purposes of s.139P of the Bankruptcy Act. These have been based on estimates given by Dr Heshmati of his anticipated income, and have been retrospectively revised after actual income became known from group certificates. In some cases, this has given rise to liabilities greater than those initially estimated. For this and other reasons that are not clear on the material before me, Dr Heshmati accrued substantial arrears. He also gave way to hopes that he could pay his liabilities to his trustees by further gambling with his income, and he claims that he spent $180,000 with this objective. He had one success in 2010, when he won approximately $110,000. Most, but not all, of this amount was paid to Mr Burness by Dr Heshmati, in the belief that it would be applied to reduce his outstanding arrears of income contributions. It is unnecessary to go into the circumstances in which this occurred.

6. To Dr Heshmati’s dismay, his trustee treated the amount of the winnings which had been forwarded, being some $93,000, not as income contributions, but as after‑acquired property not accruing from ‘income’ as defined in s.139L. Mr Burness both refused to reduce the amount of Dr Heshmati’s arrears of income contributions, but also demanded payment of the balance of his winnings, being $16,315.84. Dr Heshmati has never accepted these decisions, and they appear to have discouraged him from making further payments to reduce his arrears and voluntarily paying ongoing income contributions. For whatever reason, Mr Burness in recent times has been forced to serve a garnishee notice on his employee.

7. Moreover, the incurring of the arrears, and the events in which this happened, led Mr Burness to lodge objections to Dr Heshmati’s discharge from bankruptcy after the normal period of three years, such that Dr Heshmati now faces his bankruptcy continuing for the maximum possible period of eight years, expiring on 23 June 2015.  To add to Dr Heshmati’s misfortunes, his domestic life has suffered turmoil, and he has suffered significant mental stress, which was apparent in his presentation to the Court today.  He is also doubtful whether his Australian employment will continue, and it appears, at least, to be based on insecure foundations. 

8. All of these events result in a considerable degree of sympathy on my part. However, it is necessary to assess Mr Burness’ current refusal to permit Dr Heshmati to travel overseas for employment, by application of the established principles applying to reviews under s.178 of decisions concerning permission to travel.

9. It is clear under the Bankruptcy Act that a trustee has control over a bankrupt’s travel overseas, since he must deliver his passport to the trustee unless excused (see s.77(1)(a)(ii)). Section 272(1) makes it an offence for a bankrupt to travel without the consent in writing from the trustee, and s.272(2) provides:

   272   Leaving Australia with intent to defeat creditors etc. 

   … 

   (2)The trustee may impose written conditions on a consent given for the purposes of paragraph (1)(c). If the bankrupt is liable to make a contribution to the trustee under section 139P or 139Q, the conditions may include conditions regarding the payment of that contribution.

10. It is clear, therefore, that Mr Burness’ present conditions which are criticised by Dr Heshmati, being conditions (a) and (b), are conditions authorised by the Bankruptcy Act, and may properly be imposed if the circumstances indicate that this is appropriate.

11. Mr Burness gave evidence that it is his opinion, and at present I am not persuaded otherwise, that he has no power to waive or overlook Dr Heshmati’s obligations to pay the full amount of his assessed income contributions both in arrears and on an ongoing basis while Dr Heshmati’s bankruptcy continues. Indeed, Dr Heshmati’s liabilities in relation to any arrears will continue after he is discharged from bankruptcy (see s.139R).

12. Dr Heshmati has presented arguments to his trustee and to the Court in the present and previous applications, disputing that his winnings from gambling were properly treated as after‑acquired property, and also that he was properly regarded as being liable for arrears in income contribution. His simple argument is that he has incurred his losses from gambling with his income in an effort to meet his mounting arrears of income contributions and his obligations to his creditors under the Bankruptcy Act, and that the amount of his losses should be offset or taken into account to discharge his liabilities.

13. My description of this argument puts in somewhat stark terms the effect of Dr Heshmati’s submissions, but I think from a legal perspective that is how they have to be understood.  In those terms they manifestly have no legal substance, in particular, to reveal any error or misunderstanding of law or fact underlying conditions (a) and (b) found in Mr Burness’ present decision.  In particular, as Mr Burness said in evidence, Dr Heshmati has not presented evidence or submissions which would allow a conclusion that he has been conducting a business as a successful professional gambler.  Rather, it is clear that he has presented his occupation as that of a medical practitioner. 

14. Dr Heshmati’s other submissions complained that, notwithstanding that he had actually made payments of income contributions and gambling wins totalling at least $213,032.87, nearly all of this has been absorbed by Mr Burness’ administration of his estate, that nothing has been distributed to his creditors, six years after he was made bankrupt, and that there is no current prospect that ever will be any money left to pay creditors.  Mr Burness agreed that this was the case, and that he was awaiting the receipt of more money from Dr Heshmati before addressing the proofs of debt lodged by creditors, and calculating a dividend.  In this situation, Dr Heshmati suggested that his continuing to make contributions would serve no purposes of benefiting his creditors at all, but would allow only his trustees to profit from the continuance of his bankruptcy. 

15. However, this is not an argument which in my opinion allows me to view Mr Burness’ imposition of the present conditions about travel as being contrary to the policy and provisions of the Bankruptcy Act, or otherwise unfair or inequitable. The evidence before me does not allow, and Dr Heshmati’s application does not seek, a general review of Mr Burness’ administration of his estate. I am not satisfied that the protraction of the administration does not arise from failings on Dr Heshmati’s part, nor that its current position is not a result of those failings. I note that some expenses and delays have probably resulted from litigation engaged in by Dr Heshmati, including litigation concerning the objections to discharge and otherwise which were addressed by Driver FM in Heshmati v Paul Burness and Morgan Lane [2012] FMCA 884.

16. Dr Heshmati did not refer me to any authorities concerning review of trustees’ travel decisions, and Mr Burness’ counsel did not submit that I had not previously properly instructed myself as to those, including in Hill v Piscopo [2007] FMCA 814:

    3.There is a significant body of authority which provides guidance to the Court when requested to review a trustee’s decision about the return of a passport.  As I explained in Gu v Pascoe [2006] FMCA 367:

    9.The Court’s power under s.178 of the Bankruptcy Act to review a trustee’s decision has been described as being “the widest possible discretion” (see Re Tyndall; Ex parte Official Receiver (1997) 17 ALR 182 (“Re Tyndall”).  The statutory power allows the Court “to make such order in the matter as it thinks just and equitable”. 

    10.There are a number of decisions where the Court has been asked to review trustee decisions about travel.  The law in this respect was helpfully collected by Bryant CFM in Luna v Pattison [2004] FMCA 237. I shall not repeat all the discussion from cases which she extracts in her judgment. As did she, I find assistance in Re Hicks; Ex parte Lamb (1994) 217 ALR 195, where Heerey J suggested three considerations which were not conclusive, but could be put at the forefront of consideration. These were whether:

    i)      the proposed visit is genuine;

    ii)     the bankrupt is likely to return to Australia as promised;

    iii)    the visit will hamper the administration of the estate. 

    … 

    13.In Re Tyndall (supra) at 187, Deane J referred to the significant consideration that needs to be given to the human rights of the bankrupt person to enjoy travel in circumstances where, although a person has suffered a business collapse, he has not been found to have offended any laws. However, in a passage at 191, also extracted by Bryant CFM, Deane J said that the provisions of the Act in relation to the delivery of passport and the need for a trustee’s consent to travel:

    … recognize that a bankrupt’s legitimate desires to travel oversees must, in an appropriate case, be subordinated to what is necessary for the proper and efficient administration of his estate in bankruptcy and the administration of the bankruptcy law. 

    4.Counsel for the trustee accepted the above principles, and also submitted that I should take into account considerations referred to by Riethmuller FM in Dunwoody v Official Receiver [2005] FMCA 1634 at [29]:

    29.I do not accept that the travel must be for a purpose that assists in the administration of the estate.  If the travel may hinder the administration, either by hindering contact with the bankrupt by the trustee, or allowing the bankrupt an opportunity to deal with assets that are held overseas and have not been recovered by the trustee, these would be relevant considerations against allowing travel.  If the travel would allow the bankrupt to earn a greater income, and thus satisfy all or part of the debts this would be a relevant consideration in favour of allowing the travel.  To deny travel simply because it is only being undertaken for compassionate reasons would be an improper exercise of the discretion as it results in a punitive application of the provisions.  However, denial of permission to travel where a bankrupt is in default of his or her other obligations may be an appropriate method by which a trustee can encourage compliance by a bankrupt. 

17. In the present case, my reasons for not being persuaded that the travel conditions (a) and (b) were incorrectly imposed or should be set aside for any other reason, arises more from lack of sufficient evidence presented by Dr Heshmati to justify departing from the position taken by the trustees, than from a positive persuasion that Dr Heshmati should never be given permission to travel without first meeting his arrears of income contribution and paying the outstanding money from his 2010 winning. 

18. Essentially, it appears to me that the decision which had to be made by his trustee in relation to attempts to recover the arrears required a balancing of the prospects of further contributions and arrears being recovered from Dr Heshmati if he continued in Australia, against the prospects that Dr Heshmati might not cooperate towards this end if he were permitted to travel overseas for employment purposes, in particular by voluntarily making continuing payments of income contribution from his new sources of income and returning to Australia when his proposed temporary employment ceased. 

19. In this respect, the trustee was required to balance what appears to me to be a very real risk that Dr Heshmati might decide that life overseas is more attractive than returning to Australia to battle his trustee in bankruptcy over his past and future income contributions, and otherwise to meet his obligations under the Bankruptcy Act to assist the trustee to achieve the best possible dividend for his creditors. The current evidence before me is that the trustees have deferred finally addressing proofs of debt until more income or more resources have become available to them before distribution to creditors. But meanwhile Mr Burness has estimated a total amount owing to creditors in the sum of $525,706. It is manifest, therefore, that for Dr Heshmati to obtain early discharge under the Bankruptcy Act he would be required to raise from his earnings not only enough to pay off the arrears of income contributions, but also a considerably greater sum. In this situation, the possibility that Dr Heshmati in the future might wish to escape from these responsibilities cannot be lightly dismissed by a prudent trustee, nor by the Court, even if Dr Heshmati’s present statements of intent appear genuine today.

20. Dr Heshmati has not presented the Court with clear evidence pointing to connections to Australia which would draw him back.  He points to the existence of two sons who are, I am asked to accept, Australian citizens, aged 20 and 13 and whom Dr Heshmati says are living in Australia currently.  However, he has not fully explained their current circumstances, nor his own domestic circumstances.  The current evidence as to his personal life is far from persuading me that there is no possibility that Dr Heshmati might be more attracted to remain overseas, whether or not in the company there of his sons and other family members. 

21. There are also very considerable uncertainties in the current evidence, as to the possible benefits to the estate which could result from Dr Heshmati travelling overseas for temporary employment.  In particular, the present evidence as to the proposed employment and its likely income is notably vague.  It consists of a very informal “job offer” from a professional colleague in Iran to join that colleague “as my practice partner in neurosurgery at private rooms and hospitals that I am active as a consultant neurosurgeon in Tehran ‑ Iran”.  The proposal appears to involve a percentage of earnings after certain deductions which would be Dr Heshmati’s responsibility, but no accounting evidence is presented to assist a projection of what his net income might be and how much is promised to be paid to his bankrupt estate. 

22. The offer was first made in 2011 when Dr Heshmati first sought to travel for the purposes of employment, and was then suggested to be for “a period of three months from January 2012”.  Dr Heshmati now presents an email message from his colleague which says: “I am writing to inform you that my proposed job offer to you on my letter dated 16/11/2011 will be available to you till the end of the year 2012”.  I accept the points made by Mr Burness’ solicitor that there is something of an air of contrivance about this correspondence, but would not reject completely Dr Heshmati’s assertions that it was a genuine preliminary negotiation between professional colleagues for a professional relationship involving a share of income.  However, I consider that insufficient evidence has been presented to the Court to give substance to the prospects of any income being earned which would become available to creditors by way of income contributions or otherwise arising from such employment. 

1. Balancing all the evidence which is before me, and endeavouring to understand Dr Heshmati’s evidence and submissions as fully as possible, I am not persuaded that Mr Burness’ decision has been shown to be incorrect or relevantly inequitable or unjust to permit the Court to intervene under s.178.

2. On my own assessment of the relevant considerations, including those pointed to by Heerey J in Re Hicks (supra), I consider that Mr Burness arrived at the correct assessment of the current state of evidence submitted by Dr Heshmati.  It appears to me that it was appropriate for him, as a prudent trustee, to continue to expect Dr Heshmati to stay in Australia while he has employment in Australia which is bringing income into the estate, and in the absence of substantiated prospects that equal or better income will be achieved voluntarily after allowing the proposed travel. 

3. If the prospects of financial and other benefits to the estate arising from Dr Heshmati’s continued residence in Australia did change in the future, particularly if there was no prospect of Dr Heshmati being able to contribute to his estate for ongoing contributions or arrears, then it would be open to Dr Heshmati to persuade his trustee, and if necessary the Court, as to that circumstance.  I can appreciate that Dr Heshmati is concerned that this state of affairs may be facing him in the future or even near future, but he has not presented evidence to the Court which today persuades me that, in fact, he is not capable of earning an income by exercising his professional qualifications in New South Wales in the manner in which he has been able to in the past. 

4. For all these reasons, I therefore have concluded that I should dismiss this application.  I note that Dr Heshmati left the Court while I was delivering this judgment, but that a copy will be provided to him. 

I certify that the preceding twenty‑six (26) paragraphs are a true copy of the reasons for judgment of Smith FM

Date:  28 November 2012