Jack and Inspector-General in Bankruptcy
[2022] AATA 3176
•29 September 2022
Jack and Inspector-General in Bankruptcy [2022] AATA 3176 (29 September 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2021/4091
Re:Russell William Jack
APPLICANT
AndInspector-General in Bankruptcy
RESPONDENT
Decision
Tribunal:Deputy President Boyle
Date:29 September 2022
Place:Perth
The decision of the delegate of the Respondent made on 31 May 2021 pursuant to s 149N of the Bankruptcy Act 1966 (Cth) not to cancel an objection to the Applicant’s discharge from bankruptcy is affirmed.
...[SGD].....................................................................
Deputy President Boyle
Catchwords
BANKRUPTCY – s 149N of the Bankruptcy Act 1966 (Cth) – trustee’s objection to discharge – special ground of objection – whether there is sufficient evidence to support the special ground – whether Applicant failed to provide any reasonable excuse for conduct constituting special ground – Applicant’s salary paid into wife’s account – family home owned by company controlled by Applicant’s wife – Applicant’s income paid into wife’s account used partially to repay mortgage over property – Applicant failed to provide reasonable excuse – prohibition under s 149N(1A) of the Bankruptcy Act applies – reviewable decision affirmed
Legislation
Administrative Appeals Tribunal Act 1975 (Cth) s 43
Bankruptcy Act 1966 (Cth) ss 121, 121(2), 121(4), 121(4)(a), 121(6), 121(6)(e), 139CA(1)(a)(ii), 149A, 149B(1), 149C, 149D(1), 149D(1)(ab), 149D(1), 149D(1)(ab), 149D(1)(d), 149D(1)(e), 149K, 149N, 149N(1), 149N(1)(a), 149N(1)(b), 149N(1)(c), 149N(1)(d), 149N(1A), 149N(1A)(a), 149N(1A(b), 149N(1A)(c), 149Q
Bankruptcy Legislation Amendment (Anti-Avoidance) Act 2006 (Cth)
Corporations Act 2001 (Cth)
Cases
Bisan Ltd v Cellante [2002] VSC 430
Breen v Williams (1996) 186 CLR 71
Carter and Australian Securities and Investments Commission [2020] AATA 809
Caruana and Inspector-General in Bankruptcy [2008] AATA 307
Jones v Dunkel (1959) 101 CLR 298
Mallett and Inspector-General in Bankruptcy [2018] AATA 3739
Michael John Fuller and Hugh Jenner Wily [1998] AATA 577
Nguyen v Pattison [2004] FMCA 517
Phillips and Inspector-General in Bankruptcy [2012] AATA 788
Phillip Jack and Inspector-General in Bankruptcy [2012] AATA 788
Radford v Owners of Miami Apartments, Kings Park Strata Plan 4523666 [2007] WASC 250
Re Cummins; Richardson v Cummins (1951) 15 ABC 185, 188
Rimanic and Inspector-General in Bankruptcy [2010] AATA 875
Westpac Banking Corporation v The Bell Group (No. 3) [2012] WASCA 157
Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183
Wortman and Inspector-General in Bankruptcy [2021] AATA 2919
Secondary Materials
Explanatory Memorandum, Bankruptcy Law Amendment Bill 2002 (Cth) para 52
Explanatory Memorandum, Bankruptcy Legislation Amendment (Anti-avoidance) Bill 2005 (Cth) para 22
Michael Murray and Joe Giacco, Australian Government Solicitor’s Office, ‘Objections to Discharge – Getting it Right’ (Conference Paper, Insolvency and Trustee Australian Natural Bankruptcy Congress, 2006)
REASONS FOR DECISION
Deputy President Boyle
29 September 2022
THE APPLICATION
The Applicant seeks the review of the decision of a delegate of the Respondent made on 31 May 2021,[1] pursuant to s 149N of the Bankruptcy Act 1966 (Cth) (Act) not to cancel an objection to the Applicant’s discharge from bankruptcy.
[1]T Documents/5.
The application to the Administrative Appeals Tribunal is made under s 149Q of the Act.
BACKGROUND
On 23 November 2017 the Applicant became bankrupt under s 55 of the Act on his own petition.[2]
[2]T Documents/18.
By notice dated 5 February 2021, the Applicant’s trustee in bankruptcy filed an objection under s 149B of the Act to the Applicant’s discharge from bankruptcy.[3] The grounds for the objection to discharge included the ground in s 149D(1)(ab) of the Act and three other grounds under s 149D of the Act (the other objections). The notice of objection identified the ground under s 149D(1)(ab) of the Act as follows:[4]
[3]T Documents/93.
[4]T Documents/94
Copy of the Bankrupt’s Westpac Bank Statement Acc [number]
-The Bankrupt has made periodic transfers to his wife of approximately $163,000 over a period of 17 months pre-bankruptcy (30/07/15 – 27/12/16).
These payments were made for no consideration.
Copy of Nicole Jack CBA Acc [number]
-
The bankrupt [sic] has made periodic transfers of $2500 per month from his Westpac account to his wife Nicole Jack (Henning) that were described as ‘house payments’ and transfers to ‘N Henning’ These [sic] payments were then paid onwards to the mortgage of the property [address] (the Property) that is owned by Forrest Hill Pty Ltd of which Nicole Jack is the sole Director [sic].
The Bankrupt’s contribution over the 5-year period preceding bankruptcy is 2500*60 months = $150,000.
Certificate of title of [Property] forrest [sic] Hill Pty Ltd is the registered owner. ASIC Extract of Forrest Hill Pty Ltd of which Nicole Jack is the sole Director [sic].
By an application dated 30 March 2021,[5] the Applicant sought review by the Respondent of the trustee’s objection.
[5]T Documents/84–91.
By letter dated 31 May 2021,[6] the Respondent advised that:
(a)the trustee had, on 29 April 2021, withdrawn the other objections; and
(b)he confirmed (i.e. did not cancel) the objection filed by the trustee based on s 149N(1)(ab) of the Act.
[6]T Documents/5.
The effect of the Respondent’s decision not to cancel the objection to discharge on the ground in s 149D(1)(ab) of the Act, is to extend the Applicant’s bankruptcy to 24 November 2025.
the hearing and the evidence
The application was heard on 24 March 2022. Mr R Gillon appeared for the Applicant and Mr J Giacco appeared for the Respondent. The Applicant provided written closing submissions on 8 April 2022 and the Respondent provided written closing submissions on 26 April 2022. The Applicant was the only witness to give evidence at the hearing.
The following documents are before me:
(a)Affidavit of the Applicant sworn 1 December 2021 (A1);
(b)KRPM Pty Ltd ASIC extract, handed up at hearing 24 March 2022 (R1); and
(c)BORAL proof of debt document handed up at hearing 24 March 2022 (R2).
(d)Section 37 T documents;
(e)Applicant’s Statement of Facts, Issues and Contentions (SFIC) dated 22 September 2021;
(f)Respondent’s SFIC dated 3 November 2021;
(g)Applicant’s supplementary submissions dated 1 December 2021;
(h)Respondent's tender bundle (TB) filed on 23 March 2022;
(i)Applicant’s closing submissions filed on 8 April 2022; and
(j)Respondent’s closing submissions filed on 26 April 2022.
LEGISLATIVE FRAMEWORK
Section 149A of the Act provides that if an objection to the discharge of a bankrupt is filed, then the date of discharge of the person from bankruptcy is extended from three years from the date on which the bankrupt filed their statement of affairs, depending on the grounds of the objection, to five years or eight years from that date.
In the case of an objection on the ground in s149D(1)(ab) of the Act, the bankruptcy is extended to eight years from the date on which the bankrupt filed their statement of affairs.[7]
[7] Section 149A(2)(a)(i) of the Act.
Section 149B(1) of the Act provides as follows:
Subject to the following provisions of this Subdivision, at any time before a bankrupt is discharged from bankruptcy under section 149, the trustee may file with the Official Receiver a written notice of objection to the discharge.
Section 149C of the Act provides:
(1)A notice of objection must:
(a)set out the ground or each of the grounds of objection, being a ground or grounds set out in subsection 149D(1) but not being a ground or grounds of a previous objection to the discharge that was cancelled; and
(b)refer to the evidence or other material that, in the opinion of the trustee, establishes that ground or each of those grounds; and
(c)state the reasons of the trustee for objecting to the discharge on that ground or those grounds.
(1A)Paragraph (1)(c) does not apply to a ground specified in paragraph 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (ia), (k) or (ma).
(2)A notice of objection is not invalid merely because it does not state the ground or grounds of objection precisely as set out in subsection 149D(1) provided that the ground or grounds can reasonably be identified from the terms of the notice.
Section 149D(1) of the Act relevantly provides that:
The grounds of objection that may be set out in a notice of objection are as follows:
…
(ab)any transfer is void against the trustee in the bankruptcy because of section 121;
…
Section 149K of the Act, relevantly provides that:
(1)The Inspector-General may review a decision of the trustee to file a notice of objection:
(a)on the Inspector-General's own initiative; or
(b)if requested to do so by the bankrupt for reasons that appear to the Inspector-General to be sufficient to justify such a review.
…
(5)Within 60 days after the request is received, the Inspector-General must:
(a) decide whether to review the decision; and
(b) if the Inspector-General decides to review the decision--make his or her decision on the review.
Section 149N of the Act is, relevantly, as follows:
(1)On a review of a decision, if the Inspector-General is satisfied that:
(a)the ground or grounds on which the objection was made was not a ground or were not grounds specified in subsection 149D(1); or
(b)there is insufficient evidence to support the existence of the ground or grounds of objection; or
(c)the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or
(d)a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled;
the Inspector-General must cancel the objection.
(1A)An objection must not be cancelled under subsection (1) if:
(a)the objection specifies at least one special ground; and
(b)there is sufficient evidence to support the existence of at least one special ground specified in the objection; and
(c)the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted the special ground.
For this purpose, special ground means a ground specified in paragraph 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (ia), (k) or (ma).
(1B)In applying subsection (1A), no notice is to be taken of any conduct of the bankrupt after the time when the ground concerned first commenced to exist.
(2)The cancellation does not take effect until:
(a)the end of the period within which an application may be made to the Administrative Appeals Tribunal for the review of the decision of the Inspector-General; or
(b)if such an application is made—the decision of the Tribunal is given.
(3)If the Inspector-General is not satisfied as mentioned in subsection (1), the Inspector-General must confirm the decision.
(Original emphasis.)
Section 149Q of the Act, relevantly provides that:
An application may be made to the Administrative Appeals Tribunal for the review of:
(a)a decision of the Inspector-General on the review of a decision of the trustee to file a notice of objection;
…
Section 121 of the Act relevantly provides as follows:
(1) A transfer of property by a person who later becomes a bankrupt (the transferor) to another person (the transferee) is void against the trustee in the transferor's bankruptcy if:
(a)the property would probably have become part of the transferor's estate or would probably have been available to creditors if the property had not been transferred; and
(b) the transferor's main purpose in making the transfer was:
(i)to prevent the transferred property from becoming divisible among the transferor's creditors; or
(ii)to hinder or delay the process of making property available for division among the transferor's creditors.
Note:For the application of this section where consideration is given to a third party rather than the transferor, see section 121A.
Showing the transferor's main purpose in making a transfer
(2)The transferor's main purpose in making the transfer is taken to be the purpose described in paragraph (1)(b) if it can reasonably be inferred from all the circumstances that, at the time of the transfer, the transferor was, or was about to become, insolvent.
Other ways of showing the transferor's main purpose in making a transfer
(3)Subsection (2) does not limit the ways of establishing the transferor's main purpose in making a transfer.
Transfer not void if transferee acted in good faith
(4)Despite subsection (1), a transfer of property is not void against the trustee if:
(a) the consideration that the transferee gave for the transfer was at least as valuable as the market value of the property; and
(b) the transferee did not know, and could not reasonably have inferred, that the transferor's main purpose in making the transfer was the purpose described in paragraph (1)(b); and
(c) the transferee could not reasonably have inferred that, at the time of the transfer, the transferor was, or was about to become, insolvent.
…
(6)For the purposes of subsections (4) and (5), the following have no value as consideration:
…
(e) if the transferee is the spouse, or a former spouse, of the transferor—the transferee granting the transferor a right to live at the transferred property, unless the grant relates to a transfer or settlement of property, or an agreement, under the Family Law Act 1975;
…
(Original emphasis.)
The parties’ submissions and evidence
The Applicant
The Applicant’s affidavit sworn 1 December 2021[8] was to the following effect:
[8]A1.
(a)On 23 November 2017 the Applicant filed a debtor’s petition for his own bankruptcy.[9]
[9]A1 para [2].
(b)The Applicant was a director of Tuss Concrete Pty Ltd which went into voluntary administration on 16 October 2015 and is now in liquidation.[10]
[10]A1 para [3].
(c)Tuss Concrete provided concreting and construction services on commercial projects and, prior to a series of “unfortunate events”, was financially sound.[11]
[11]A1 para [4].
(d)From October 2013 to August 2014, Tuss Concrete incurred irrecoverable bad debts of $2,100,000.[12] In 2014, Tuss Concrete incurred a further loss of approximately $750,000 on one project and equipment write downs[13] and from about December 2013 to early 2015, Tuss Concrete was forced to step in to undertake the work of a subcontractor and incurred additional costs of approximately $2,000,000.[14]
[12]A1 para [5].
[13]A1 para [6].
[14]A1 para [7].
(e)At the time of the voluntary administration in October 2015, Tuss Concrete was owed $1,200,000 for variations and had approximately $800,000 in retentions against it under one contract.[15]
(f)Tuss Concrete had refinanced its equipment in December 2014, realising $1,400,000 for working capital, and had reduced overheads.[16]
(g)One of the creditors of Tuss Concrete was the Australian Taxation Office (ATO), and on 12 February 2015 the ATO issued a Director Penalty Notice (DPN) to the Applicant in respect of PAYG withholding liabilities of Tuss Concrete. The Applicant says that he did not tell his wife that he had received the DPN.[17]
(h)Shortly after receipt of the DPN, the Applicant, his brother (who was the other director of Tuss Concrete) and a consultant, Mr Oren Zohar (Mr Zohar) (an insolvency expert) negotiated with the ATO, with a view to Tuss Concrete entering into a deed of company arrangement (DOCA). On 20 November 2015 the creditors of Tuss Concrete voted in favour of a DOCA.[18]
(i)The ATO did not accept the compromise of the debt owed by the Applicant which was a condition of the DOCA. Tuss Concrete was placed into liquidation on 15 September 2017.[19]
(j)In April 2015 Tuss Concrete determined that it did not have sufficient working capital to undertake new projects and, in April 2015, entered into a “Teaming and License Agreement” with Tuss Group Pty Ltd, under which Tuss Concrete would not undertake civil or construction related work and would concentrate on concrete supply. Tuss Group secured working capital from a family member and commenced operations.[20]
(k)Tuss Group secured new work, traded profitably and funded the expenses of Tuss Concrete. At the date of appointment of administrators to Tuss Concrete on 16 October 2015, Tuss Concrete owed Tuss Group $776,800.[21]
(l)Tuss Group traded successfully from July 2015 to June 2016.[22] Tuss Group made significant advances to Tuss Concrete to enable Tuss Concrete to pursue legal actions. The Applicant at that time thought that Tuss Concrete could survive.[23]
(m)The Applicant and his wife received income from Tuss Group from about July 2015. The Applicant’s wife provided administrative services to Tuss Group.[24]
(n)The Applicant’s and his wife’s respective incomes for the years 2014 to 2017 were:[25]
[15]A1 para [8].
[16]A1 para [10].
[17]A1 paras [11]–[12].
[18]A1 paras [13]–[14].
[19]A1 para [15].
[20]A1 paras [16]–[18].
[21]A1 para [20].
[22]A1 para [21].
[23]A1 para [24].
[24]A1 para [25].
[25]A1 paras [26]–[33].
Applicant
Applicant’s wife
2014
$154,022
$76,485
2015
$119,790
$189,736
2016
$123,049
$149,652
2017
$167,437
$150,486
(o)During the period that the Applicant’s wife was receiving an income from Tuss Group, the Applicant says that his wife “was also performing all of the domestic duties associated with our family” which comprised the Applicant, his wife and two young children. The Applicant says that he did not perform any domestic duties.[26] The Applicant estimates that the value of the domestic services provided by his wife was $7,500 per month.[27]
[26]A1 paras [34]–[36]
[27]A1 para [52].
(p)
In addition to undertaking all of the domestic duties, the Applicant’s wife “permitted [the Applicant] and the children to reside in her property” (i.e. the Property).
The Applicant did not pay his wife for the domestic services that she provided; however, he and the children received the benefit of those services.[28]
(q)From time to time the Applicant’s income was paid into an account or accounts of his wife (the wife’s account),[29] into which the Applicant’s wife also paid her income.[30] Payments for day-to-day living expenses were made from the wife’s account.[31]
(r)The Applicant’s parents made a contribution towards the Applicant and his wife’s wedding, which was paid into the wife’s account via the Applicant’s account.[32]
(s)The Applicant’s wife’s wages were paid into the Applicant’s account[33] and the Applicant made regular payments, most often of $5,000, into the wife’s account. This practice had been going since 2014.[34]
(t)The payments that the Applicant made to his wife were to allow her to satisfy their day-to-day living expenses “or were otherwise funds to which [the Applicant’s wife] was entitled in her own right”.[35]
(u)At no time did the Applicant make a payment to his wife for the purpose of avoiding creditors.[36]
[28]A1 paras [37]–[38].
[29]A1 para [39].
[30]A1 para [41].
[31]A1 para [40].
[32]A1 para [42].
[33]A1 para [44].
[34]A1 para [45].
[35]A1 para [50].
[36]A1 para [48].
Some of the contentions made in the Applicant’s SFIC and the Applicant’s supplementary submissions were expressed in terms of errors in the Respondent’s reviewable decision or reasons for decision. As I pointed out in Phillip Jack and Inspector-General in Bankruptcy,[37] the role of the Tribunal is not to review a decision to find legal error in the decision or the reasons for decision, but to do over again that which the original decision-maker did and to make its own de novo decision based on the evidence before the Tribunal. Where the Applicant’s SFIC and supplementary submissions have been expressed in terms of the Respondent’s reviewable decision or reasons for decision being incorrect as having overlooked some matter or having failed to have regard, or sufficient regard, to relevant evidence, I have taken those contentions and submissions as going to matters or evidence which support the making of a decision that the objections should, or must, be cancelled under s 149N(1) of the Act.
[37][2022] AATA 2908 at [19].
The Applicant’s case, as set out in the Applicant’s SFIC and supplementary submissions, is as follows:
(a)The payments made by the Applicant into the wife’s account were not made for no consideration, they were made in order for the Applicant to comply “with his obligation to maintain his wife and children and a place of residence”.[38]
[38]Applicant’s SFIC para [11].
(b)The assertion that payments that were made by the Applicant into his wife’s account from which payments towards the mortgage over the Property were made would otherwise have been available to the Applicant’s creditors, is incorrect because it does not take into account the fact that at all times the Applicant’s wife had sufficient funds of her own to meet the mortgage payments.[39]
[39]Applicant’s SFIC para [12].
(c)The Applicant’s wife contributed funds into the wife’s account in excess of the amount paid towards the mortgage and that at all times the Applicant’s wife had sufficient funds to meet the mortgage payments.[40]
(d)The Applicant’s wife provided consideration for the payments “in that the Applicant had a responsibility to provide accommodation for himself and his children and by making the payments to Mrs Jack he was meeting those obligations”.[41]
(e)The payments in question were, given their nature, not a “transfer of property”, (presumably) for the purposes s 121 of the Act.[42]
(f)The payments made by the Applicant to his wife’s account were primarily used to satisfy the day-to-day living expenses of the Applicant, his wife and other members of his family.[43]
(g)It does not follow that had the payments not been made by the Applicant to his wife’s account that the funds would have been available for the creditors of the Applicant.[44]
(h)The Applicant “had an ongoing relationship to maintain his wife and young children”[45] and, in the circumstances, it could not be concluded that the “property” would probably have become part of the estate of the Applicant.[46]
(i)Once day-to-day living expenses are accounted for (excluding the payments towards the mortgage) no money would have been left for creditors from the amounts paid by the Applicant.[47]
(j)The Applicant’s wife did not know and could not reasonably have inferred that the purpose for which the Applicant was making payments of his income into the wife’s account was to prevent that money from being available to creditors.[48]
(k)The Applicant’s wife did not know and could not reasonably have inferred that the Applicant was, or as about to become, insolvent.[49]
(l)It is not the case that without the Applicant’s payments to his wife she would not have been able to meet the mortgage payments.
[40]Applicant’s SFIC paras [2(a)]–[2(c)] under heading “Contentions”.
[41]Applicant’s SFIC para [2(d)] under heading “Contentions”.
[42]Applicant’s SFIC para [4] under heading “Contentions”.
[43]Applicant’s SFIC para [5] under heading “Contentions”.
[44]Applicant’s SFIC para [6] under heading “Contentions”.
[45]Applicant’s SFIC para [7] under heading “Contentions”.
[46]Applicant’s SFIC para [8] under heading “Contentions”.
[47]Applicant’s supplementary submissions para [7].
[48]Applicant’s supplementary submissions para [15(b)].
[49]Applicant’s supplementary submissions para [15(c)].
The Respondent’s SFIC sets out the Respondent’s case as follows:
(a)The approach to be taken by the Tribunal in the review is described by Deputy President Hanger in Mallett and Inspector-General in Bankruptcy.[50]
[50][2018] AATA 3739; Respondent’s SFIC para [7].
(b)The Respondent cites the Explanatory Memorandum (EM) to the bill by which s 149D(1)(ab) was introduced in the Bankruptcy Law Amendment Act 2002 (Cth).[51]
[51]Respondent’s SFIC para [9].
(c)From the incorporation of Tuss Concrete in February 2009 until 6 February 2017, the Applicant was one of its two directors.[52]
[52]Respondent’s SFIC para [13(a)].
(d)On 12 February 2015, the ATO issued the Applicant with a DPN in the sum of $471,468 following Tuss Concrete’s failure to pay its outstanding PAYG withholding taxation obligations, which obligations and liability had first arisen on 3 July 2014.[53]
[53]Respondent’s SFIC para [13(b)].
(e)During the period 9 March 2015 to 5 December 2016, the Applicant transferred periodic payments from his bank account to the wife’s account.[54]
[54]Respondent’s SFIC para [13(c)].
(f)The source of the funds paid by the Applicant to the wife’s account was his income from Tuss Concrete.[55]
[55]Respondent’s SFIC para [13(d)].
(g)Money representing the Applicant’s wife’s income from Tuss Concrete was paid into the Applicant’s bank account.[56]
[56]Respondent’s SFIC para [13(e)].
(h)Periodic payments of $2,323 were transferred from the wife’s account into the Applicant’s wife’s home loan account held in the name of Forrest Hill Pty Ltd in relation to the Property.[57]
[57]Respondent’s SFIC para [13(f)].
(i)On 25 September 2007, Forrest Hill Pty Ltd became the owner of the Property. A settlement statement issued by the settlement agent recorded the purchase price of the Property as $430,000 which was financed by a bank loan of $342,997.40. The Property is the Applicant’s family residence.[58]
[58]Respondent’s SFIC para [13(h)].
(j)As at 30 June 2014, the home loan account held a debit loan balance of $296,667.21.[59]
[59]Respondent’s SFIC para [13(i)].
(k)From 30 July 2015 to 28 December 2016 (the relevant period), the Applicant received into his account deposits totalling $242,000. The Respondent says that half of that amount represented the Applicant’s income and half the Applicant’s wife’s income.[60]
(l)In the relevant period, an amount of $203,000 was paid from the Applicant’s account to the wife’s account. This amount was $81,759 in excess of the Applicant’s wife’s salary for the relevant period.[61]
(m)A component of the funds transferred by the Applicant into the wife’s account contributed to the equity in the Property.[62]
(n)On 20 May 2021, the ATO lodged a proof of debt in the Applicant’s bankrupt estate in the sum of $1,182,000 which related to Director’s penalties incurred by the Applicant as director of Tuss Concrete in respect of unpaid PAYG taxation and Super Guarantee obligations for the period 3 July 2014 to 14 August 2015.[63]
(o)At the time of the transfer of funds from the Applicant’s account to the wife’s account, the Applicant had significant liabilities under the DPN with no resources to pay the debt. He was insolvent at the time of the transfers.[64]
(p)As the Applicant was insolvent at the time of the transfers of the funds, by operation of s 121(2) of the Act, the requirements of s 121(1)(b)(i) were satisfied at the time of the transfers.[65]
(q)In relation to the Applicant’s assertion that the transfer of the funds was for consideration provided by his wife, while a person can provide consideration by input to a joint enterprise comprised of a marriage and the bringing up of a family may give rise to there being equal consideration for the transfer of property (within the meaning of s 120 or 121 of the Act), in the present case the Applicant’s wife was occupied in a seemingly full-time role as an “Administrator-Office” of Tuss Concrete and/or Tuss Group with direct knowledge of the companies’ liabilities and the Applicant’s contingent liabilities which arise upon the Tuss Concrete’s failure to meet its tax obligations.[66]
(r)In relation to the Applicant’s claim that his wife had sufficient funds to meet the mortgage obligations on the Property but that her funds were used to meet the day-to-day family expenses; even if that were the case, it does not change the legal position, as the Applicant’s income that would have been used to meet the day-to-day family expenses would have been be used for the benefit of his family, thereby allowing his wife’s income to pay the mortgage over the Property (each being regarded as “joint contributions”).[67]
(s)Without the Applicant’s income and contributions, the Applicant’s wife would not have been able to retain the Property and benefit from its increase in value (including the equity in the Property).[68]
(t)Under s 121 of the Act, the trustee would have a claim to an entitlement to the reduction in the Property home loan founded on half of the joint contributions between the Applicant and his wife and the trustee may also be entitled to claim half (or a proportion) of the capital gain of the Property founded on the joint contributions (both to the Property home loan – direct financial contributions) and the family expenses of the Applicant and the Applicant’s wife (indirect financial contributions).[69]
[60]Respondent’s SFIC para [13(j)].
[61]Respondent’s SFIC para [13(j)].
[62]Respondent’s SFIC para [13(l)].
[63]Respondent’s SFIC para [13(m)].
[64]Respondent’s SFIC para [13(n)].
[65]Respondent’s SFIC para [15].
[66]Respondent’s SFIC para [17].
[67]Respondent’s SFIC para [19].
[68]Respondent’s SFIC para [20(a)].
[69]Respondent’s SFIC para [20(b)]–[20(c)]; citing ss 121A and 139CA(1)(a)(ii) of the Act.
In addition to the matters covered by the Applicant’s SFIC and supplementary submissions, the Applicant’s closing submissions contend that:
(a)It is a fundamental principle of bankruptcy law that bankrupts have a presumption of automatic discharge by operation of law.[70]
[70]Citing Michael John Fuller and Hugh Jenner Wily [1998] AATA 577; Applicant’s closing submissions para [5].
(b)The role of the Tribunal in conducting a review of the Respondent’s decision is limited by the legislative regime, in particular s 149N of the Act.[71]
[71]Citing Combe v Inspector-General in Bankruptcy [2005] FCA 1101 and Fitzgibbon v Inspector-General in Bankruptcy [2000] FCA 1677; Applicant’s closing submissions paras [6]–[7].
(c)The standard of proof to be applied on a ground of objection is the balance of probabilities.[72]
[72]Applicant’s closing submissions para [13].
(d)The ground of objection is a special ground of objection by virtue of s 149N(1)(c) of the Act.[73]
[73]Applicant’s closing submissions para [25].
(e)The transfer of property the subject of the objection is a series of payments from the Applicant’s bank account to his wife’s account. The Applicant’s wife’s income was paid into the Applicant’s bank account and as such a payment from the Applicant’s bank account to his wife may well have been a payment to her of an amount she was beneficially entitled to.[74]
[74]Applicant’s closing submissions paras [26]–[27].
(f)A transfer of funds by the Applicant to which the Applicant’s wife was beneficially entitled cannot be a transfer of property for the purposes of s 121 of the Act.[75]
[75]Applicant’s closing submissions paras [28]–[29].
(g)There is no evidence as to the ownership of the funds in the Applicant’s bank account prior to any transfers taking place.[76]
[76]Applicant’s closing submissions para [31].
(h)In relation to the payment of $5000 from the Applicant to his wife on 30 July 2015, on 29 July 2015 two payments of $3,706 were made into the Applicant’s account “[a]t least one of which is a salary payment of” the Applicant’s wife.[77]
[77]Applicant’s closing submissions para [32].
(i)$10,000 received into the Applicant’s account on 5 August 2015 from the Applicant’s parents to pay for the Applicant and his wife’s wedding. On 6 and 7 August 2015, payments totalling $10,000 were made from the Applicant’s account to the wife’s account.[78]
[78]Applicant’s closing submissions para [33].
(j)Based on the matters in (h) and (i) above, the Applicant’s wife was the beneficial owner of $13,706 paid into her account.[79]
[79]Applicant’s closing submissions para [34].
(k)
The taxable income of person is not the same as actual cash received.
The Applicant’s calculations, as distinct from the trustee’s calculations, were made on the basis of cash received.[80]
[80]Applicant’s closing submissions paras [35]–[36].
(l)It is not the case that, but for the transfers, the funds would have been available to Applicant’s creditors. Once the income that has been applied in payment of day-to-day living expenses of the family unit, excluding any payments applied in respect of mortgage payments, there would be nothing left of the income of the Applicant.[81]
[81]Applicant’s closing submissions paras [41]–[42].
(m)When Tuss Concrete fell into financial difficulty, the Applicant and his wife were engaged by and received income from Tuss Group. Tuss Group traded successfully and was only held back due to the fact it was meeting liabilities of Tuss Concrete in particular legal costs and was advancing funds to Tuss Concrete to allow creditors of Tuss Concrete to be paid.[82]
[82]Applicant’s closing submissions paras [43]–[44].
(n)The reason that the DOCA failed was that no compromise arrangement was reached with the ATO in relation to the DPNs issued to the Applicant and his brother.[83]
[83]Applicant’s closing submissions para [45].
(o)In cross-examination, a list of creditors of Tuss Concrete was put to the Applicant, however, that list was incorrect because many of the creditors listed as unsecured creditors held security for any amounts owing to them and others had been paid during Tuss Concrete’s administration.[84]
[84]Applicant’s closing submissions para [46].
(p)The Applicant’s evidence was that his wife had never met Mr Zohar nor had any dealings with him. There is no obligation on a proxy holder to report back to his appointor as to what took place at a meeting of creditors, nor is there any obligation on the proxy holder to provide copies of minutes or other documents to the appointor.[85]
[85]Applicant’s closing submissions paras [49]–[50].
(q)Tuss Group generated significant gross turnover and seemed to be trading profitably, with a substantial portion of the profits generated then paid to Tuss Concrete. In those circumstances it would not be unusual for the Applicant’s wife to be unaware that the Applicant had received several DPNs from the ATO.[86]
[86]Applicant’s closing submissions paras [51]–[52].
(r)The payments would not have been available to creditors as they were made with funds that properly belonged to his wife or were in payment of family day-to-day living expenses that the Applicant was obliged to satisfy.[87]
(s)The Applicant’s wife provided consideration for the payments made to her over and above payments that represented her salary. The consideration was: (a) the services provided by her; and (b) permitting the Applicant and their children to reside in the Property, which was under the control of the Applicant’s wife.[88]
(t)The Applicant’s wife did not know and could not reasonably have inferred, that the Applicant’s main purpose in making the payment was to prevent the money in question from becoming divisible among his creditors, or to hinder or delay the process of making property available for division amongst the Applicant’s creditors, because:
(i)Most funds transferred by the Applicant to his wife’s accounts were to meet day-to-day living expenses of the family.
(ii)The payments were made at a time when it was never contemplated by the Applicant let alone his wife that he would enter bankruptcy.
(iii)At the time Tuss Group was trading successfully and well able to employ and pay the Applicant and his wife.
(iv)The Applicant had not told his wife about the issue of the DPN.
(v)Nothing had changed in the financial arrangements as between the Applicant and his wife.
(vi)The role of the Applicant’s wife in Tuss Concrete and Tuss Group was such that she was not involved in the financial affairs of either company.[89]
[87]Applicant’s closing submissions paras [53]–[54].
[88]Applicant’s closing submissions para [57(a)].
[89]Applicant’s closing submissions paras [57(b)]–[57(c)].
The Respondent’s closing submissions were to the following effect:
(a)In relation to the Applicant’s reference to Fuller (see para [22(a)] above), that decision applied to the Act before the Amendment Act (see [21(b)] above) which, among other matters, introduced the concept of “special grounds” of objection and took away the need for a trustee to provide reasons for lodging such an objection.[90]
[90]Respondent’s closing submissions para [3].
(b)The Amendment Act was introduced to strengthen the objection to discharge provisions of the Act, making it easier for trustees to lodge objections to a bankrupt's discharge from bankruptcy and harder for bankrupts to sustain challenges to objections: see Nguyen v Pattison.[91]
[91][2004] FMCA 517; Respondent’s closing submissions para [4].
(c)The practical effect of s 149N of the Act was relevantly explained in Caruana and Inspector-General in Bankruptcy as follows:[92]
[92][2008] AATA 307 [13]; Respondent’s closing submissions para [6].
In order to succeed in obtaining a cancellation of a special ground of objection [an applicant] must show at least one of the conditions in s 149N(1) of the Act applies and that the circumstances in s 149N(1A) of the Act do not apply.
(d)There is no inherent jurisdiction for the Tribunal to go outside the terms of s 149N of the Act.[93]
[93]Citing Wortman and Inspector-General in Bankruptcy [2021] AATA 2919 [8]; Respondent’s closing submissions para [9].
(e)An ordinary reading of s 149N of the Act, together with paras 47 and 53–54 of the EM and relevant authorities, draws a conclusion that there must be some evidence of a probative value to establish the ground of objection. Proof of that evidence would on the balance of probabilities.[94]
[94]Respondent’s closing submissions para [12].
(f)The “sufficient evidence” necessary to establish a ground of objection under s 14D(1)(ab) of the Act is to be contrasted with sufficiency of evidence that would be required to determine a claim under s 121 of the Act.[95]
[95]Respondent’s closing submissions para [12].
(g)In terms of the voidable transaction grounds under the Act (which includes s 149D(1)(ab) of the Act), a trustee would need to have evidence of the necessary elements of the transaction but would not need to have had a court make a finding to that effect in order to found an objection.[96]
[96]Respondent’s closing submissions para [14]; citing Michael Murray and Joe Giacco, Australian Government Solicitor’s Office, ‘Objections to Discharge – Getting it Right’ (Conference Paper, Insolvency and Trustee Australian Natural Bankruptcy Congress, 2006).
(h)A ground of objection under s 149D(1)(ab) of the Act does not require a trustee to make a demand or commence proceedings under s 121 of the Act.[97]
[97]Respondent’s closing submissions para [15]; citing Mallett at [47], where Deputy President R I Hanger QC cites with approval Drummond J in Re Cummins; Richardson v Cummins (1951) 15 ABC 185, 188 (in Westpac Banking Corporation v The Bell Group (No. 3) [2012] WASCA 157 [2535]).
(i)“Sufficiency of evidence” for the purposes of s 149N (in determining whether a ground of objection under s 149D(1)(ab) can be maintained) requires evidence (on a balance of probabilities) sufficient only to identify a transaction which satisfies the elements of s 121 of the Act.[98]
[98]Respondent’s closing submissions para [16].
(j)In relation to the payments into the mortgage account which benefited Forrest Hill Pty Ltd, neither financial returns nor minutes of meeting of the trustee of the Forrest Hill Trust have been provided by the Applicant to the Tribunal or to the Respondent. Those minutes should relevantly record the resolutions of the trustee of the Trust, and the decisions it made in respect of the contribution made by the Applicant to the mortgage over the Property. The financial returns of the Trust, including its taxation returns, would explain the treatment of those payments. The Tribunal is therefore not in a position to determine what consideration is provided by the Trust to the Applicant or his wife in exchange for the Applicant’s moneys being used to pay the mortgage over the Property. Payment of the mortgage and the maintenance and associated expenses (rates etc.) relating to the Property are the responsibility of Forrest Hill Pty Ltd as trustee of the Trust and are not the obligation of the Applicant or the Applicant’s wife.[99]
(k)The services of the Applicant’s wife in caring for their children is a private matter between husband and wife and are not relevant under bankruptcy law unless triggered by both a claim under family law and bankruptcy law. Services related to the Property were services for the benefit of the Trust which owned the Property.[100]
(l)The Applicant’s evidence should be treated with caution. At times during cross examination, the Applicant was requested by the Tribunal to answer the question, to refrain from asking questions, being argumentative or trying to be “smart”.[101]
(m)There is no probative evidence that Tuss Group traded successfully in circumstances where only one set of annual financial accounts were prepared for the Tuss Group for a period of three years prior to Tuss Group going into liquidation.[102]
(n)Mr Zohar was the proxy for the Applicant’s wife and would have provided to her, in accordance with his legal obligations, all relevant details of all relevant matters affecting her interest as a creditor of Tuss Concrete, including the fact of the Applicant’s insolvency and receipt of the DPN.[103]
(o)In view of the obligations of Mr Zohar as the wife’s proxy holder, and also at the relevant times a Registered and Official Liquidator, it cannot be accepted that the Applicant’s wife was not made aware of the matters that took place at the meeting of creditors of Tuss Concrete on 20 November 2015, including being made aware of the Applicant’s acknowledged dire insolvency.[104]
(p)The Applicant’s wife was not called to give evidence; she would have been best placed to assist the Tribunal in relation to the Applicant’s evidence in respect of this ground of objection.[105]
(q)The Applicant’s contention that there is no legal obligation on a proxy holder to report back to their appointor as to what took place at a meeting of creditors or to provide minutes of the meeting is incorrect. Under the Corporations Act 2001 (Cth), a proxy is regarded as a fiduciary and owes fiduciary duties to the specific appointor. As a fiduciary, a proxy holder is obliged to report to their appointor.[106]
(r)Insofar as the Applicant contends that his wife provided consideration for the transfers by providing accommodation for the Applicant and the children, she was not the owner of the Property. Further, as a consequence of the amendments to the Act introduced through the Bankruptcy Legislation Amendment (Anti-Avoidance) Act 2006 (Cth), s 121 was amended to make it clear that “consideration” is not to include any right that the transferee has given to their bankrupt spouse to reside at the transferred property.[107]
(s)The Applicant’s wife was employed as an office administrator by Tuss Concrete and Tuss Group and received income in excess of $120,000 per annum. Through the proxy holder, the Applicant’s wife was aware of both the financial position of Tuss Concrete and the Applicant’s dire financial position.
[99]Respondent’s closing submissions para [21].
[100]Respondent’s closing submissions para [22].
[101]Respondent’s closing submissions para [24]; citing Transcript 10 [10–15]; 22; 67.
[102]Respondent’s closing submissions para [35].
[103]Respondent’s closing submissions para [42].
[104]Respondent’s closing submissions para [44].
[105]Respondent’s closing submissions para [45]; citing the principle in Jones v Dunkel (1959) 101 CLR 298.
[106]Respondent’s closing submissions paras [46]–[49]; Whitlam v Australian Securities and Investments Commission [2003] NSWCA 183; (2003) 46 ACSR 1; Bisan Ltd v Cellante [2002] VSC 430 and Radford v Owners of Miami Apartments, Kings Park Strata Plan 4523666 [2007] WASC 250 wherein at [44] Simmonds J referred to the observation of the High Court in Breen v Williams (1996) 186 CLR 71 per Gaudron and McHugh JJ at [113].
[107]Respondent’s closing submissions para [54].
CONSIDERATION
The issues for determination are dictated by the requirements of s 149N(1) and s 149N(1A) of the Act. They are:
(a)whether the objection specifies a “special ground”;
(b)whether there is sufficient evidence to support the existence of the special ground identified in the objection; and
(c)if there is sufficient evidence to support the special ground, whether the Applicant failed to establish that he had a reasonable excuse for the conduct that constituted the special ground.
The inter-relationship between ss 149N(1) and 149N(1A) of the Act was considered by Deputy President Forgie in Rimanic and Inspector-General in Bankruptcy[108] in some detail, from para [26] onwards. I agree with and adopt Deputy President Forgie’s analysis of those sections.
[108][2010] AATA 875.
As Deputy President Forgie noted at para [28], a succinct statement of the operation of those sections is contained in the decision of Senior Member Friedman in Caruana at [13]:
In order to succeed in obtaining a cancellation of a special ground of objection Mr Caruana must show that at least one of the conditions in s 149N(1) of the Act applies and that the circumstances in s 149N(1A) of the Act do not apply, otherwise the Tribunal must confirm the decision under s 149N(3).
Deputy President Forgie found that the only caveat to the acceptance of Senior Member Friedman’s summary of the operation of the section is that, insofar as it suggests that the bankrupt has a burden or onus of proof to establish that one of the circumstances identified in sub-ss (a) to (d) of s 149N(1) of the Act exists, that is not correct. No such onus arises under the Act. In accordance with the general principles in s 43 of the Administrative Appeals Tribunal Act 1975 (Cth), the Tribunal is to put itself in the position of the person making the decision under review. Deputy President Forgie summarised the position at [31] in Rimanic as being:
... All that is required in relation to s 149N(1) is that the Inspector-General, and so the Tribunal, is “satisfied”. That does not impose a burden of proof upon a party to the application. All that it does is indicate the standard to which the Inspector-General, and so the Tribunal, must be persuaded. In the absence of any statutory provision to the contrary, the standard of proof applicable in civil proceedings in the courts is that applicable in the Tribunal i.e. on the balance of probabilities.
Deputy President Hanger in Mallett at [16] described the approach to be taken by the decision-maker as follows:
… even if one of the other reasons for cancelling the objection as provided in s 149N(1) exist, the objection cannot be cancelled if there is sufficient evidence to support the existence of that special ground: paragraph 149N(1A)(b).
This effectively imposes the minimum threshold before an objection on a special ground can be cancelled of being satisfied that there is insufficient evidence to support the existence of that special ground.(Emphasis added.)
The approach taken by Deputy President Hanger is consistent with para 52 of the EM to the Amendment Act, which provided:
Proposed new subsection 149N(1A) identifies the special ground paragraphs.
As noted, they relate to deliberate actions which can disrupt a trustee’s administration or which are intended to defeat creditors. While it can be difficult to infer intention, in each instance the burden of proof which the trustee will bear if an objection is challenged is the civil onus, ie, proof on the balance of probabilities.
Senior Member James in Wortman at [8] described the operation of s 149N(1A) as follows:
Importantly, section 149N(1A) does not require the [Respondent], and therefore the Tribunal to be satisfied that the reasons given for objecting on that ground or those grounds do not justify the making of the objection. That is, where a special ground has been contravened and the bankrupt fails to establish paragraph (b) above, [Respondent], and the Tribunal on a review, do not have an administrative discretion.
(Footnotes omitted.)
Section 149N(1A)(a) of the Act – is the objection a “special ground”?
The ground of objection identified in s 149D(1)(ab) of the Act is defined as a “special ground” by the last paragraph of s 149N(1A) of the Act (see [15] above). The condition in s 149N(1A)(a) of the Act is therefore satisfied. The issues for determination are therefore those identified in paras [24(b)] and [24(c)] above.
Section 149N(1A)(b) of the Act – Is there sufficient evidence to support the existence of the special ground specified in the objection?
The special ground objection identified is a transfer (or transfers) of property which is (or are) void against the trustee under s 121 of the Act. The “transfers of property” are the payments identified in the objection as set out in [4] above, specifically the “periodic transfers to his wife of approximately $163,000 over a period of 17 months pre-bankruptcy (30/07/15 to 28/12/16)”.
The relevant consideration for the Tribunal under s 149N(1A)(b) of the Act is whether there “is sufficient evidence to support the existence” of the special ground, in this case, transfers that are void under s 121 of the Act. It is not the role of the Tribunal in these proceedings to determine whether a claim by the Trustee to void transfers under s 121 of the Act would be successful, but rather to determine whether there is sufficient evidence to support a claim that there were transfers of property that come within the operation of s 121 of the Act.
The first element of a claim under s 121 of the Act is a transfer of property. In the present case, that element is satisfied by the payments made by the Applicant into his wife’s account. The Applicant does not dispute that the payments were made (see [18(q)] above). It is the characterisation of the payments that the Applicant disputes. It is, however, indisputable that a payment of money into an account is a transfer of property for the purposes of s 121 of the Act.
The second element of the claim under s 121 of the Act is that the funds transferred would, had they not been transferred, have been available to the creditors of the Applicant. The Applicant argues that the evidence establishes that his income paid into the wife’s account would not have been available to the Applicant’s creditors because they were “funds that properly belonged to his wife” or were used “in payment of family day to day [sic] living expenses that the Applicant was obliged to satisfy”.[109]
[109]Applicant’s closing submissions paras [53]–[54].
I note that exactly the same wording was used by the Applicant’s brother in his supplementary submissions filed in Phillip Jack.[110] Mr Gillon, who also appeared for the Applicant’s brother in that matter, noted in opening in the present case that the two matters were “very similar”.[111] In effect the same arguments that were run in Phillip Jack were run by the Applicant in the present case. For the same reasons that I rejected those arguments in Phillip Jack, I reject the Applicant’s arguments.
[110]Phillip Jack para [33].
[111]Transcript at 2.
As in Phillip Jack, the only payments being considered were those of the Applicant’s funds into his wife’s account, not the payments of his wife’s income into her accounts. In any event, no basis is put forward by the Applicant to support the proposition that he alone was “obliged to satisfy” the “family [day-to-day] living expenses”. Why was that not equally the obligation of the Applicant’s wife, whose income during the relevant period was similar to that of the Applicant?[112] It is not, as I understand it, the Applicant’s case that the money paid into the wife’s account by the Applicant was and could only be used to meet the family’s day-to-day living expenses, and that the Applicant’s wife’s income paid into the same account was and could only be used to pay the mortgage on the Property. In any event, the evidence did not establish that to be the case.
[112]See para [18(n)] above and Transcript at 33 in relation to the Applicant’s wife’s income during relevant period.
It is also irrelevant to this consideration that the Applicant’s wife had, or may have had, sufficient funds of her own to meet the mortgage obligations on the Property. As the Respondent correctly notes, even if that were the case, it does not change the legal position.[113] Even if the funds paid by the Applicant into his wife’s account were nominally used to meet the day-to-day family expenses (of which there is no evidence given that the Applicant’s and his wife’s funds were merged in the account), the nominal use of the Applicant’s funds to meet day-to-day family expenses enabled his wife’s nominal funds from the same account to be used to pay the mortgage over the Property. The end result is the same, namely that the Applicant’s wife, or in this case the company controlled by the Applicant’s wife, Forrest Hill Pty Ltd, benefited by the increase in equity in the Property, thereby putting the benefit of the payments made by the Applicant beyond the reach of his creditors.
[113]Above n 65.
The determination of the trustee’s specific claims against the Applicant’s wife or Forrest Hill Pty Ltd would be a matter for determination by a court exercising bankruptcy jurisdiction under s 121 of the Act. However, for present purposes, I am satisfied that there is evidence to support the proposition that the Applicant’s funds paid into his wife’s account were used to make mortgage payments and to increase Forrest Hill Pty Ltd’s equity in the Property, equity beyond the reach of the Applicant’s creditors.
In opening, Mr Gillon for the Applicant outlined the basis of the Applicant’s case.[114]
While no specific concession was made that, at the time that the payments were made to the Applicant’s wife, the Applicant was or was about to become insolvent, Mr Gillon did not put forward as part of the Applicant’s case that the Applicant was, at the relevant times, solvent. I am satisfied that it can reasonably be inferred from all of the circumstances that at the time of those transfers, the Applicant was, or was about to become, insolvent. Relevantly, the Applicant had on 12 February 2015, been issued with a DPN in the sum of $471,468. Rather than paying the amount of the DPN, the Applicant and his brother consulted an insolvency specialist[115] with a view to, amongst other objectives, negotiating settlement of the DPN with the ATO. The Applicant’s liability for the taxes that remained unpaid by Tuss Concrete and penalties was increasing after the issue of the DPN on 12 February 2015 at between approximately $30,000 and $75,000 per fortnight.[116] A second DPN was issued to the Applicant by the ATO on 17 November 2016 for a further amount of $700,444 representing further unpaid tax and penalties.[117][114]Transcript at 2.
[115]See above para [18(h)].
[116]T Documents/375.
[117]Transcript at 52.
In addition to the Applicant failing to pay the amount of the DPN, there is other evidence that the Applicant was unable to meet his obligation to pay the amount of the DPN. The documents placed before the second creditors’ meeting of Tuss Concrete (then known as CDP (WA) Pty Ltd) stated that the Applicant had no personal assets.[118] Not only was the Applicant unable to meet his obligation to pay the amount of the DPN issued in February 2015; he was unable to reach a compromise with the ATO for a payment, presumably of a lesser amount or a program of payments, to satisfy his obligation under the DPN.
[118]TB 17/31.
In the end, the inability of the Applicant to reach a settlement of the amount owed to the ATO under the DPN caused the DOCA to be terminated.[119] I am satisfied that from all of the above circumstances, it can reasonably be inferred that, at the time of the payments being made by the Applicant to his wife’s account, the Applicant was or was about to become insolvent.
[119]Applicant’s evidence; Transcript at 62–3.
Given my finding that there is evidence to support the conclusion that the Applicant was insolvent or about to become insolvent at the time of the payments into his wife’s account, by operation of s 121(2) of the Act, it can be taken that the main purpose of the Applicant making the transfers was to prevent the Applicant’s income from being divisible among his creditors, or to hinder or delay the funds from being available to creditors.
The Applicant further argues that transfer of the funds is not void because the Applicant’s wife provided consideration for the transfers equal to or in excess of the amount of the funds transferred, and that she was not aware that the Applicant was insolvent or about to become insolvent. I do not accept either of these contentions.
The Applicant says that he “estimates” that the value of the domestic services that his wife provided to be $7,500 per month based on what he would have had to pay third parties to provide those services.[120] Firstly, there is no evidence (independent or otherwise) to support that valuation. Secondly, the “calculation” makes no allowance for the benefit that the Applicant’s wife received from the services that she provided. Thirdly, the proposition appears to be based on the premise that the Applicant alone was obliged to provide (or to pay for) all of the domestic support for his family. As noted in [37] above, why was that not equally the obligation of the Applicant’s wife who, during the relevant period, was employed by Tuss Group and receiving a salary close to that of the Applicant?[121]
[120]See above paras [18(o)] and [18(p)].
[121]See above paras [18(m)] and [18(n)].
The second element of the consideration claimed by the Applicant to have been provided by his wife was the provision of accommodation for the family which, according to the Applicant, was his (apparently sole) responsibility. There is no basis put forward by the Applicant to support the proposition that it is his “responsibility to provide accommodation for himself and his children”.[122] As I noted above, why is it any more the Applicant’s, rather than the Applicant’s wife’s, responsibility to provide accommodation for their children, particularly when throughout the relevant period, the Applicant’s wife was earning as much as, if not marginally more than the Applicant?
[122]See above para [20(d)].
Another flaw in the Applicant’s reliance on his wife providing consideration for the transfers by providing accommodation for the Applicant and their children in the Property, is that the Applicant’s wife was not the owner of the Property, Forrest Hill Pty Ltd was. Even if Forrest Hill Pty Ltd “was under the control of the Applicant’s wife”,[123] it was that company, not the Applicant’s wife, which provided any “consideration” by way of accommodation.
[123]Applicant’s closing submissions para [57(a)(2)].
Further, as noted by the Respondent,[124] the effect of amendments to s 121(6) of the Act introduced by the Bankruptcy Legislation Amendment (Anti-avoidance) Act 2006 (Cth) was explained in the EM as follows:[125]
The second amendment would provide that the grant of a right to a bankrupt spouse to reside at a place owned by the non-bankrupt spouse, such as the family home, does not constitute consideration (except in cases of marital breakdown)
[124]See above para [22(r)].
[125]Explanatory Memorandum, Bankruptcy Legislation Amendment (Anti-avoidance) Bill 2005 (Cth).
While in the present case the Property was not the “transferred property”,[126] the transfers of funds were used, at least partly, to fund the increase in the Applicant’s wife’s company’s equity in the Property.
[126]Per s 121(6)(e) of the Act.
For the above reasons, I find that there is evidence to support a case that the Applicant’s wife has not provided consideration which would satisfy a defence by the Applicant’s wife under s 121(4)(a) of the Act against a claim under s 121(1) of the Act.
Even if that is not the case, that is, the Applicant’s wife could demonstrate that she provided consideration to the value of the payments made by the Applicant, the next element in establishing a defence under s 121(4) of the Act that the Applicant’s wife would have to satisfy is that she did not know, and could not reasonably have inferred, that the main purpose in the Applicant making the payments into her account was for the purpose of the money represented by those payments being unavailable to creditors, or delaying those funds being available to creditors.
The significant difficulty that the Applicant has in relation to this issue is that his wife did not give evidence. Clearly the Applicant, who was legally represented throughout these proceedings, and in the matters leading up to his bankruptcy, knew that his wife’s state of knowledge of his solvency and her knowledge of the purpose of the payments being made into her account, were critical issues.
It is obvious that the best person to give evidence as to the Applicant’s wife’s knowledge is the Applicant’s wife. While it would have been a simple matter for her to do so, she did not provide a statement in the proceedings notwithstanding that she assisted the Applicant in preparing his statement, by preparing attachment RJ11 to his statement.[127] The Applicant’s statement does not even purport to address his wife’s knowledge of his solvency at the relevant times. The only thing that the Applicant says in his statement potentially relevant to this issue is that when he received the DPN in February 2015 He “did not tell [his] wife … as he did not see the need to do so”.
[127]A1 para [43].
Because of the Applicant’s choice not to call her or have her provide a statement, her state of mind and what she actually knew is a matter of conjecture in circumstances where that should not be the case. The statement that the Applicant did not tell his wife that he had received the DPN says nothing about what her actual knowledge of her husband’s financial position was.
Not surprisingly, the Respondent points to the principle in Jones v Dunkel and to the fact that the Applicant’s wife was, and is, the person best placed to give evidence as to her knowledge. No explanation was provided by the Applicant for not calling his wife. As a result of the Applicant’s failure to call her to give evidence, I draw the adverse inference that her evidence would not have assisted the Applicant’s case.
Independently of that inference, I find that there were circumstances from which the Applicant’s wife could reasonably have inferred that the Applicant was insolvent and that his main purpose in making the transfers into her account was to prevent creditors from having access to those funds. Even if I were to accept that the Applicant did not tell his wife that he had received the first DPN in February 2015, by October 2015, Tuss Concrete was in sufficient financial trouble for it to be placed into voluntary administration with a second creditors’ meeting voting in favour of a DOCA on 20 November 2015.[128]
[128]See above para [18(h)].
Importantly, the Applicant’s wife (a creditor of Tuss Concrete) appointed a proxy, Mr Zohar, who was also proxy for the Applicant, the Applicant’s brother (the other director of Tuss Concrete) and the Applicant’s brother’s wife, to attend the creditors’ meeting. I note that Mr Zohar also was not called by the Applicant to give evidence in these proceedings.
The proposed DOCA specifically referred to the DPN issued to the Applicant by the ATO, it being a condition of the DOCA that the Applicant and his brother were to compromise the debt arising under the DPN with the ATO.[129] The minutes of the second creditors’ meeting also referred to the DPN issued against the Applicant by the ATO and the need to settle that debt for the DOCA to proceed.[130] The documents placed before that creditors’ meeting also stated that the Applicant had no personal assets.[131]
[129]See above para [18(i)].
[130]TB 18/31.
[131]TB 17/31.
I accept the Respondent’s submission that Mr Zohar (as the Applicant’s wife’s proxy)[132] was, as a fiduciary, under a legal obligation to report back to the Applicant’s wife material matters arising at the creditors’ meeting and its outcome. I cannot accept that, as a bare minimum, Mr Zohar would not have provided a copy of the proposed DOCA to the Applicant’s wife if she did not already have a copy. The DOCA specifically provided that an agreement would have to be reached with the ATO for the payment of the amounts due by the directors (the Applicant and his brother) under the DPN.
[132]Noting also that Mr Zohar is, or was, a Registered and Official Liquidator.
Given the above, I cannot accept that the Applicant’s wife was not at the time of the creditors’ meeting in November 2015 (or earlier), aware of, or could not reasonably have inferred, the Applicant’s indebtedness under the DPN and the Applicant’s clear inability to meet that debt. In other words, there is evidence to support the claim that the Applicant’s wife knew or could reasonably have inferred that the Applicant was already, or was about to become, insolvent at the time that the transfers of funds were made.
I am satisfied that there is evidence to support the argument that the Applicant’s wife would not be able to establish a defence under s 121(4) of the Act to an action by the trustee to void the transfers of the Applicant’s income into her bank account.
Section 149N(1A)(c) of the Act – did the Applicant have a reasonable excuse for the conduct constituting the special ground?
The Applicant’s case is not that there was “a reasonable excuse for the conduct … that constituted the special ground”, but rather, that the conduct did not constitute a transfer that was void under s 121 of the Act. In that sense, he has not argued that there is a reasonable excuse for the purposes of s 149(1A)(c) of the Act. In any event, I find that the Applicant has not provided a reasonable excuse for his conduct for the purposes of s149(1A)(c) of the Act. I therefore find that the third element of the prohibition on cancelling the objection under s 149N(1A) is satisfied.
CONCLUSION
The Applicant seeks the cancellation of the objection under s 149N of the Act. For the reasons set out above, I find that the requirements of s 149N(1) of the Act are not met and, further, that the prohibition under s 149N(1A) of the Act on cancelling this objection under s 149N(1) of the Act applies. Accordingly, the Applicant fails.
DECISION
The decision of the delegate of the Respondent made on 31 May 2021 pursuant to s 149N of the Act not to cancel an objection to the Applicant’s discharge from bankruptcy is affirmed.
I certify that the preceding 63 (sixty-three) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle
...[SGD]....................................................................
Associate
Dated: 29 September 2022
Date of hearing: 23 March 2022 Counsel for the Applicant: Mr R Gillon Solicitors for the Applicant: Lawton Gillon Counsel for the Respondent: Mr J Giacco Solicitors for the Respondent: McInnes Wilson Lawyers
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