Huston and Inspector-General in Bankruptcy
[2007] AATA 1658
•10 August 2007
Administrative Appeals Tribunal
DECISION AND REASONS FOR DECISION [2007] AATA 1658
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q 200600804
GENERAL ADMINISTRATIVE DIVISION ) Re DAVID HUSTON Applicant
And
INSPECTOR-GENERAL IN BANKRUPTCY
Respondent
DECISION
Tribunal Deputy President P E Hack SC Date10 August 2007
PlaceBrisbane
Decision The Tribunal:
(a) sets aside the respondent’s decision of 20 October 2006;
(b) substitutes a decision that the fee payable to the Official Trustee under Subdivision 2.2 of Part 16 of the Bankruptcy Regulations 1996 in respect of the applicant’s second bankruptcy (Estate Number Qld 1310/00/0) be remitted to the extent of $9000.00................Signed...............
Deputy President
CATCHWORDS
INSOLVENCY AND BANKRUPTCY – application to waive fees payable to Official Trustee - applicant became bankrupt in November 1998 and March 2000 – applicant beneficiary under father’s will – funds from executor paid unsecured creditors – applicant left with $291 from estate – high amount of fees payable to Official Trustee - no undue hardship - whether exceptional circumstances exist – unfortunate coincidence of dates; personal medical circumstances of depression, stroke, motor accident victim; conduct of Official Trustee imperfect; overall level of fees and costs compared to extent of assets realised – applicant’s circumstances are exceptional and discretion exercised – fees in later bankruptcy reduced by half – decision set aside – substitute decision that fees payable to Official Trustee be remitted to $9000
Bankruptcy Act 1966 – ss 59(1)(c), 160, 163, 283, 283(2)(a)
Bankruptcy Regulations 1996 – Regs. 5(5), 16.07A, 16.08A, 16.13A, 16.13A(5), 16.13B
Bankruptcy Amendment Regulations 2006 (No. 1)
Bankruptcy (Estate Changes) Act 1997 – s 6
Albion Insurance Co Limited v General Insurance Office of New South Wales (1969) 121 CLR 342
Official Receiver v Schultz (1990) 170 CLR 306
Re Schneller and Inspector-General in Bankruptcy [2004] AATA 906
Clark v Inspector-General in Bankruptcy (2004) 78 ALD 517
Equuscorp Pty Ltd v Short Punch & Greatorix [2001] 2 Qd R 580
Adsett v Berlois and Others (1992) 37 FCR 201
Groth v Secretary, Department of Social Security (1995) 40 ALD 541
REASONS FOR DECISION
10 August 2007 Deputy President P E Hack SC Introduction
1.This is an application by Mr David Huston in which Mr Huston seeks a review of a decision made by the respondent, the Inspector-General in Bankruptcy (by a delegate), on 20 October 2006. By that decision the delegate refused to exercise a power to waive fees payable to the Official Trustee in Mr Huston’s bankruptcies.
Background
2.There is no dispute about the basic facts. Mr Huston became a bankrupt in November 1998 (“the earlier bankruptcy”) when his debtor’s petition was accepted by the Official Receiver. By operation of s 160 of the Bankruptcy Act 1966 (Cth.) the Official Trustee became the trustee of Mr Huston’s estate in the earlier bankruptcy.
3.Mr Huston was discharged from the earlier bankruptcy on 28 March 2000. Some 6 days earlier on 22 March 2000, a further petition presented by Mr Huston was accepted by the Official Receiver and in consequence Mr Huston became a bankrupt (“the later bankruptcy”) by virtue of that petition. Again, the Official Trustee became the trustee of the estate.
4.Upon the later bankruptcy and by operation of s 59(1)(c) of the Bankruptcy Act the Official Trustee, as trustee of the earlier bankruptcy, was deemed to be a creditor in the later bankruptcy in respect of the expenses and remuneration in the earlier bankruptcy, liabilities incurred, and debts proved in the earlier bankruptcy. Had Mr Huston’s later bankruptcy commenced after his discharge from the earlier bankruptcy, the obligations from the earlier bankruptcy would not have been imposed upon his estate in the later bankruptcy.
5.In his statement of affairs in the earlier bankruptcy Mr Huston disclosed a liability, owed jointly and severally with Ms Pamela Dixon, to Avco Financial Services. At some stage Ms Dixon discharged her liability; I gather by agreeing to become solely liable to Avco Financial Services for the debt. As a consequence and, I assume, by operation of the doctrine of contribution[1] she became entitled to prove in the earlier bankruptcy.
[1]See e.g. Albion Insurance Co Limited v Government Insurance Office of New South Wales (1969) 121 CLR 342 at 350.
6.Mr Huston was discharged from the later bankruptcy on 22 March 2003. A few days earlier on 13 March 2003, Mr Huston’s father passed away. By his will the father left all of his estate to Mr Huston and his two siblings equally. As a beneficiary Mr Huston had no legal or equitable interest in the property the subject of the bequest; rather he had a right to due administration of the estate. That interest encompassed not only the chose in action but also the expected fruits of the chose in action and it vested in the Official Trustee as soon as it vested in Mr Huston[2].
[2] Official Receiver v Schultz (1990) 170 CLR 306 at 314.
7.Eventually, an amount in the order of $140,000 was received by the Official Trustee from the executor of the estate of Mr Huston’s father. The consequence of the receipt of those funds was that the unsecured creditors in the later bankruptcy (who included the creditors in the earlier bankruptcy and the Official Trustee as trustee in the earlier bankruptcy) were able to be paid in full. In addition, trustee’s fees and expenses and a realisation charge totalling an amount of $35,575.93 were paid out of the bankrupt estate. The residue, an amount of $291, was paid to Mr Huston. The trustee’s costs were broken down as follows:
Fees
Expenses
Realisation
Total
1998 bankruptcy
$4,980.98
$108.27
_
$5089.25
2000 bankruptcy
$18,018.71
$1,767.35
$10,700.62
$30,486.68
$22,999.69
$1,875.62
$10,700.62
$35,575.93
The Statutory Scheme
8.The Official Trustee is to be renumerated as prescribed by the Bankruptcy Regulations 1996[3]. Division 2 of Part 16 of the Bankruptcy Regulations deals with the fees payable to the Official Trustee. Regulation 16.07A imposes a liability to pay an amount calculated by reference to the “realised balance”. Additionally, Regulation 16.08A permits the Official Trustee to recover out of the estate an amount equal to the amount of expenses incurred in performing the work of the trustee.
[3] See Bankruptcy Act s 163
9.The present proceedings arise under Regulation 16.13A. Prior to 16 February 2006 when the Bankruptcy Amendment Regulations 2006 (No. 1) were registered, Regulation 16.13A gave the Inspector-General power to waive or remit the whole or part of a fee payable under Division 2 of Part 16 of the Bankruptcy Regulations, subject to an irrelevant exception. That Regulation, as in force prior to 16 February 2006, provided:
“(1) Subject to subregulation (2), the Inspector-General may waive or remit the whole or part of any fee.
(2) A fee may only be waived or remitted, whether wholly or in part, if the Inspector-General is reasonably satisfied that:
(a)payment of the fee by the person liable to pay it has imposed, or would impose, undue hardship on the person; or
(b)because of other exceptional circumstances, it is proper and reasonable to do so.
(3) For paragraph (2)(a), undue hardship means hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy.
(4) A decision under subregulation (1) must be notified in writing to:
(a)the person concerned; and
(b)except where the fee is payable to the Inspector-General – the officer to whom the fee is or, but for the waiver or remission, would be payable.
(5) In this regulation: fee means a fee payable under a provision, other than regulation 16.04, of this Division.”
The Official Trustee’s fee payable under Regulation 16.07A came within the definition of “fee” in Regulation 16.13A(5).
10.The Bankruptcy Amendment Regulations 2006 (No. 1) amended the Bankruptcy Regulations in two material respects. First, Regulation 16.13A(5) was amended such that “fee” was defined as:
“a fee payable under a provision, other than regulation 16.04 or Subdivision 2.2, of this Division.”
Because the fee payable under Regulation 16.07A was a fee payable under Subdivision 2.2 of Division 2, the effect of the amendment was to remove the discretion to waive or remit the Regulation 16.07A fee.
11.The other amendment was to Regulation 16.13 which was amended to read:
“Application may be made to the Administrative Appeals Tribunal for review of a decision of the Inspector-General under subregulation 16.13A(1) to refuse to waive or remit the whole or part of a fee that became payable under a provision, other than regulation 16.04 or Subdivision 2.2, of this Division.”
12.However Regulation 5 of Bankruptcy Amendment Regulations 2006 (No. 1) contained transitional provisions in these terms:
“(1) Subregulations (2) to (7) apply despite the amendments made by items [10] and [11] of Schedule1.
(2) The Inspector-General may waive or remit the whole or part of any fee that became payable under Subdivision 2.2 of Part 16 of the Bankruptcy Regulations 1996 before the commencement of these Regulations, if the Inspector-General is reasonably satisfied that:
(a) payment of the fee by the person liable to pay it has imposed, or would impose, undue hardship on the person; or
(b) because of other exceptional circumstances, it is proper and reasonable to do so.
(3) For paragraph (2)(a), undue hardship means hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy.
(4) A decision under subregulation (2) must be notified in writing to:
(a)the person concerned; and
(b)the Official Trustee.
(5) Application may be made to the Administrative Appeals Tribunal for review of a decision of the Inspector-General under subregulation (2) to refuse to waive or remit the whole or part of any fee that became payable under Subdivision 2.2 of Part 16 of the Bankruptcy Regulations 1996 before the commencement of these Regulations.
(6) A person who is aggrieved by a decision under subregulation 16.13A(1) of the Bankruptcy Regulations 1996 in relation to a fee payable under Subdivision 2.2 of Part 16 of those Regulations (being a decision made before the commencement of these Regulations) may apply to the Administrative Appeals Tribunal for review of the decision if the time within which that decision may be reviewed has not ended.
(7) The Inspector-General is taken to have delegated the power to waive or remit the whole or part of a fee under subregulation (2) to any person to whom the Inspector-General delegated the power to waive or remit a fee under subregulation 16.13A(1) of the Bankruptcy Regulations 1996, under a delegation:
(a) that was made under subsection 11(4) of the Bankruptcy Act 1996; and
(b) that was in effect immediately before the commencement of these Regulations.”
13.The fee payable to the Official Trustee under Regulation 16.07A in the present case became payable before the commencement of the Bankruptcy Amendment Regulations 2006 (No. 1). Thus, under the transitional provisions, the Inspector-General had power to waive or remit. By virtue of Regulation 5(5) Mr Huston might make application to this Tribunal for a review of the decision of the Inspector-General to refuse to waive or remit the fee payable under Subdivision 2.2 of Part 16 of the Regulations.
14.I should note that the Official Trustee’s expenses, payable by virtue of Regulation 16.08A, do not come within the definition of “fee” and are not subject to this application.
15.The realisation charge of $10,700.62 arises under a different regime. It is imposed by the Bankruptcy (Estate Charges) Act 1997 as a percentage of amounts received by a bankrupt. The amount imposed here is $10,700.62; being 8% of the total realised sum of $133,757.00. It is, by virtue of s 6 of the Bankruptcy (Estate Charges) Act, payable by the trustee to the Commonwealth within 35 days after the end of each financial year. The charge in the present case was paid by the Official Trustee in July 2005.
16.Provision is made by s 283 of the Bankruptcy Act to remit a realisation charge in these terms:
“(1) The Inspector-General may remit an amount of interest charge, realisations charge or late payment penalty that is payable but has not been paid if the Inspector-General thinks that:
(a) failure to remit the amount would cause a person undue hardship; and
(b) it is appropriate to remit the amount.
(2) The following provisions apply in relation to remissions under subsection (1):
(a) the person liable to pay the charge or penalty may apply for a remission;
(b) an application is to be in writing, setting out the reasons for the application, and is to be made to the Inspector-General;
(c) the Inspector-General’s decision on an application is to be in writing;
(d) application may be made to the Administrative Appeals Tribunal for review of a decision to refuse an application, or to remit a lesser amount than was applied for.”
17.In Re Schneller and Inspector-General in Bankruptcy[4] the Tribunal held that an application made out of time, that is, after payment had been made, could not be considered either by the Inspector-General or the Tribunal. The correctness of this decision was not questioned before me. However, in the present case, where there is an expected surplus in the estate available to be paid to the bankrupt, the right of the bankrupt to seek a review of the decision is rendered illusory if the payment has been made prior to the bankrupt being made aware of the fact of the payment and the entitlement to seek a review.
[4] [2004] AATA 906.
18.I appreciate that the Inspector-General takes the view that only the trustee may make an application for remission because the wording of s 283(2)(a) gives to “the person liable to pay the charge” the power to apply for remission. In Clark v Inspector-General in Bankruptcy[5] Senior Member McCabe took a broad view of s 283(2)(a) and considered that the person from whose pocket the fees would ultimately come was the person liable to pay.
[5] (2004) 78 ALD 517.
19.I find myself in respectful disagreement with the Senior Member’s conclusions in that case. It seems obvious that his attention was not drawn to the jurisprudence on the meaning of that phrase. The cases are referred to in a decision of the Queensland Court of Appeal in Equuscorp Pty Ltd v Short Punch & Greatorix[6] where the Court was concerned with the entitlement of a “client” to seek an assessment of a solicitor’s costs. “Client” was defined in the statute in issue as including “a person who has paid, or is liable to pay, the amount…”. The beneficiary of a unit trust sought an assessment of costs that had been paid by the trustee, essentially on the footing that it would ultimately bear the burden of those costs. The Court held that “liable to pay” carried its ordinary meaning of “responsible in law”.
[6] [2001] 2 Qd R 580.
20.The situation here is, to my mind, the same. It is only the trustee of the estate who is responsible in law for payment of a charge, interest or penalty even though, in a case where there is a surplus, the bankrupt ultimately bears the cost.
21.But, as it seems to me, there is a simple solution. A trustee, whether a private trustee or the Official Trustee, has an:
“…obligation to administer the estate in such a manner as to maximise the return from estate assets, and thereby to maximise satisfaction of the creditor’s claims and any possible surplus for the bankrupt”.[7]
[7] Adsett v Berlouis and Others (1992) 37 FCR 201 at 208.
In a case where a surplus was anticipated, that duty would extend to at least making an enquiry of the bankrupt as to whether an application ought to be made by the trustee.
22.If the application were to be refused I would have thought that the bankrupt in the situation postulated was a person whose interests were affected by the decision, thus giving the bankrupt the right to apply to this Tribunal for review.
23.But these matters are an aside in the present case where no application was made in time and the question of waiver of the realisation charge does not arise.
Undue Hardship
24.I should start by recording some further factual matters regarding the position of Mr Huston. He did not give evidence before me and his application was presented by his sister-in-law, Ms Cathy Huston. Mr Huston, according to Ms Huston, suffers from depression, has suffered from strokes, and in September 2006 was struck by a motor car whilst a pedestrian. He receives an age pension and is reliant, to some extent, on assistance from his son. I also have a medical report that suggests that Mr Huston may be suffering from early dementia.
25.Mr Simmons, the solicitor for the Inspector-General, has drawn my attention to a number of cases where members of the Tribunal have been called upon to consider “undue hardship” in its present context. These cases do not establish any particular pattern, however I think it fair to say that in cases where there has been remission on the grounds of undue hardship the applicant’s circumstances were worse that those of Mr Huston. I do not mean to downplay his difficulties, but one starts from the proposition that generally bankruptcy will have a debilitating effect upon those who attain that status. Bankrupts attain that status because they recognize, or a Court is satisfied, that they are unable to pay their debts as they become due. Frequently, the inability to pay debts will be caused by, or associated with, personal misfortune.
26.I do not regard the hardship that Mr Huston undoubtedly suffers to be “undue” and do not regard the present case as one where the discretion to waive for undue hardship should be exercised. That is not to say, however, that Mr Huston’s circumstances are not relevant to the second issue.
Other Exceptional Circumstances
27.As it seems to me the Regulation poses two questions:
·are there other exceptional circumstances of the case that make it proper and reasonable to exercise the discretion to remit fees;
·if so, to what extent should be waived.
28.Neither the Act nor the Regulations contains a definition of “exceptional circumstances”. The cases in this Tribunal have tended to treat the expression as being synonymous with the expression “special circumstances” found in a variety of contexts in the social security legislation. There is a wealth of authority that discusses the meaning to be given to the expression “special circumstances”. Those cases establish that the term is not capable of precise or exhaustive definition but that what must appear are circumstances that distinguish the case from others and set it apart from the ordinary case[8].
[8] See Groth v Secretary, Department of Social Security (1995) 40 ALD 541 at 545.
29.The starting point must be an acknowledgement that the statutory framework is such that the Official Trustee is entitled to levy the fee calculated in accordance with Regulation 16.07A. Something “exceptional” must appear to displace that entitlement.
30.In my view there are circumstances in the present case that are truly exceptional and make it proper and reasonable to exercise the discretion.
31.The first circumstance that is relevant is that there were two occasions where an unfortunate coincidence of dates has worked against Mr Huston. Had he presented his second petition for bankruptcy a few days later than he did the fees, costs, and proven debts of the earlier bankruptcy would not have been brought into the later bankruptcy. Had that occurred, Mr Huston would have retained the bulk of his father’s bequest although his estate would still have been liable to pay the realisation fee. Similarly, had his father died a few days later, the bequest would not have formed part of the divisible property in Mr Huston’s estate in the later bankruptcy.
32.As a consequence of these two circumstances, Mr Huston received the trifling benefit of $291 from his father’s estate.
33.It is relevant to have regard to Mr Huston’s personal circumstances, earlier detailed. While they are not, in my judgment, circumstances of undue hardship they are a relevant consideration in examining the whole of Mr Huston’s circumstances.
34.Next, it seems to me to be relevant that the Ombudsman has concluded that the conduct of the Official Trustee was imperfect. That conclusion is recorded in the Ombudsman’s letter to Ms Huston of 12 January 2007 in these terms:
“The Ombudsman has recorded a finding of administrative deficiency in relation to ITSA’s management of Mr Huston’s second bankruptcy, most particularly ITSA’s delay in identifying Mr Huston’s first trustee in bankruptcy as a creditor in Mr Huston’s second bankruptcy. The Ombudsman has asked ITSA to consider what remedial action might be appropriate, including whether there is scope for a reconsideration of ITSA’s decision not to waive its fees in this case.”
35.Another matter of significance is the overall level of fees and costs ($35,000) compared to the extent of assets realised ($140,000). During the hearing I invited the Inspector-General to provide me with evidence as to the amount of work involved in the two administrations. That material includes a spreadsheet of the fees that would have been incurred had time-costing rather than the regulation been used to determine the fees. I acknowledge immediately that there is no legislative basis on which a time-costing could have been undertaken in relation to the later bankruptcy, however my purpose in seeking its preparation was to ascertain the level of work undertaken in the administration of the later bankruptcy and to compare that with the statutory realisation.
36.The time-costing method produces fees of $14,327.23 compared to the actual fee of $18,018.71. That confirms my impression that the fees charged are disproportionate to the work undertaken, although fees calculated on the basis of realisation rather than work done will frequently have that effect. I should add that Ms Huston sent a submission to the Tribunal responding to the spreadsheet of fees in which she invites me to undertake a taxation of fees by scrutinising the work done. It would be unfair to the Inspector-General to proceed along that path and I do not propose to do so.
37.Collectively, the matters to which I have made reference – the unfortunate coincidence of events, the trifling benefit out of the estate received by Mr Huston, Mr Huston’s personal circumstances, the Ombudsman’s finding of administrative deficiency in the administration of the estate, and the disproportion between the work done and the fee charged - lead me to conclude that Mr Huston’s circumstances are exceptional and that it is proper and reasonable to exercise the discretion to remit.
38.The question then is the extent to which the fees should be waived. I consider that practical justice will be done, and a proper balance kept, if I were to reduce the fee in the later bankruptcy by half. That fee was $18,018.71 and I would round the amount to be remitted down to $9,000.00.
39.I would then set aside the respondent’s decision of 20 October 2006 and substitute a decision that the fee payable to the Official Trustee under Subdivision 2.2 of Part 16 of the Bankruptcy Regulations 1996 in respect of the administration of the applicant’s second bankruptcy (Estate Number Qld 1310/00/0) be remitted to the extent of $9,000.00.
I certify that the 39 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President P E Hack SC
Signed: ........................Signed.............................................
Eleanor O’Gorman, AssociateDate of Hearing 3 July 2007
Date of Decision 10 August 2007
Last submissions received 1 August 2007
For the Applicant Ms C Huston
Solicitor for the Respondent Australian Government Solicitor