Jack and Inspector-General in Bankruptcy
[2022] AATA 2908
•8 September 2022
Jack and Inspector-General in Bankruptcy [2022] AATA 2908 (8 September 2022)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2021/4090
Re:Phillip Jack
APPLICANT
AndInspector-General in Bankruptcy
RESPONDENT
Decision
Tribunal:Deputy President Boyle
Date:8 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 – house owned by Applicant’s wife – Applicant’s income paid into wife’s account used to repay mortgage over property – Applicant’s lack of bank account not a 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
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
Rimanic and Inspector-General in Bankruptcy [2010] AATA 875
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
8 September 2022
the application
The Applicant seeks 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] R1/10.
The application to the Administrative Appeals Tribunal was made under s 149Q of the Act.
background
On 23 November 2017 the Applicant became bankrupt by a debtor’s petition. Graeme Trevor Lean (Trustee) was appointed as the trustee of the Applicant’s bankrupt estate.[2]
[2] R1/26–27.
On 8 February 2021, the Trustee advised the Applicant that he had, on 5 February 2021, filed an objection to the Applicant’s discharge from bankruptcy on the grounds identified in ss 149D(1)(e), 149D(1)(ab), and 149D(1)(d) of the Act.
By an “application for review of objection” dated March 2021, the Applicant applied to the Respondent for a review of the Trustee’s objection to discharge.[3]
[3] R1/67–74.
On 31 May 2021, the Respondent issued a decision[4] cancelling the objections to the Applicant’s discharge from bankruptcy on the grounds identified in ss 149D(1)(d) and 149D(1)(e) of the Act and confirming the objection on the ground identified in s 149D(1)(ab) of the Act.
[4] R1/10.
The effect of the decision on the Applicant is to extend his period of bankruptcy until 24 November 2025.
the hearing and the evidence
The application was heard on 23 March 2022. Mr R Gillon appeared for the Applicant and Mr J Giacco appeared for the Respondent. The Applicant provided written closing submissions on 6 April 2022 and the Respondent provided written closing submissions on 20 April 2022. The Applicant was the only witness to give evidence at the hearing. The following documents were admitted into evidence:
(a)Affidavit of Phillip Jack sworn 1 December 2021 (A1);
(b)Electronic lodgement declaration signed 11 June 2020 for 2019 tax return (A2);
(c)T-documents filed in the Tribunal 30 July 2021 (R1);
(d)Supplementary T-documents filed in the Tribunal 23 December 2021 (R2);
(e)Tender bundle filed in the Tribunal 22 March 2022 (excluding documents not specifically raised in the proceedings) (R3);
(f)Scanned document from Lawton Gillon dated 1 October 2021 (R4);
(g)Email from Ms Pereira of the Trustee’s office (R5); and
(h)Bank statements of the Applicant’s wife handed up at hearing on 23 March 2022 (R6).
legislative framework
Section 149A of the Act provides that if an objection is made to the discharge of a bankrupt then the date of discharge of the person from bankruptcy is extended from three years to five years or eight years, depending on the grounds of the objection.
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;
…
(d)the bankrupt, when requested in writing by the trustee to provide written information about the bankrupt's property, income or expected income, failed to comply with the request;
…
(e)the bankrupt failed to disclose any particulars of income or expected income as required by a provision of this Act referred to in subsection 6A(1) or by section 139U;
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 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.)
OBJECTION UNDER s 149D(1)(ab) of the Act
The objection filed by the Trustee[5] on the ground of objection identified in s 149D(1)(ab) of the Act, under the heading “Evidence”, was as follows:
The [Applicant] has diverted his income from wages, dividends, trust distributions and other associations to his wife of Hayley’s Commonwealth Bank Accounts for the period 01/01/14 to 30/06/17
These amounts of $556,583 (net income) would have been available to creditors had it not been diverted to Mrs Jack’s account.
CBA Bank Statements in the name of Hayley Jack for the 3.5 year period prior to Bankruptcy detailing credits attached.
The parties’ submissions and evidence
[5] R1/75.
The Applicant
The Applicant’s affidavit sworn 1 December 2021[6] set out the following:
[6] A1.
(a)The Applicant was a director of Tuss Concrete Pty Ltd which was placed into voluntary administration on 16 October 2015 and was subject to a deed of company arrangement (DOCA). Tuss Concrete was subsequently placed into liquidation.[7]
[7] A1 para 3.
(b)Tuss Concrete provided concrete construction services on large commercial, industrial and mining projects. Prior to a “series of unfortunate events” Tuss Concrete was financially sound.[8]
[8] A1 para 4.
(c)From October 2013 to August 2014 Tuss Concrete incurred irrecoverable bad debts of $2,100,000.[9] In 2014 Tuss Concrete incurred a further loss of approximately $750,000 on one project[10] 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.[11]
[9] A1 para 5.
[10] A1 para 6.
[11] A1 para 7.
(d)At the time of the voluntary administration Tuss Concrete was owed $1,200,000 for variations and had approximately $800,000 in retentions against it under one contract.[12]
[12] A1 para 8.
(e)Tuss Concrete had refinanced its equipment in December 2014 realising $1,400,000 for working capital and had reduced overheads.[13]
(f)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.[14] The Applicant says that he did not tell his wife that he had received the DPN.[15]
(g)Shortly after receipt of the DPN, the Applicant, his brother (who was the other director) and a consultant, Mr Zohar (an insolvency expert) negotiated with the ATO, with a view to Tuss Concrete entering into a DOCA. On 20 November 2015 the creditors of Tuss Concrete voted in favour of a DOCA.[16]
(h)The ATO did not accept the debt compromise proposed which was a condition of the DOCA. Tuss Concrete was placed into liquidation on 15 September 2017.[17]
(i)In April 2015 Tuss Concrete determined that it did not have sufficient working capital to undertake new projects.[18]
(j)In April 2015 Tuss Concrete 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.[19]
(k)Tuss Group secured new work, traded profitably and funded 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.[20]
(l)Tuss Group traded successfully from July 2015 to June 2016. 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.[21]
(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.[22]
(n)The Applicant and his wife’s respective incomes for the years 2014 to 2017 were:
[13] A1 para 10.
[14] R1/192–3.
[15] A1 para 12.
[16] A1 paras 13–14.
[17] A1 para 15.
[18] A1 para 16.
[19] A1 paras 17–18.
[20] A1 para 20.
[21] A1 para 23.
[22] A1 para 24.
Applicant
Applicant’s wife
2014
$136,279
$83,151
2015
$125,897
$157,890
2016
$125,431
$134,157
2017
$202,859
$154,432
(o)During the period that the Applicant’s wife was receiving an income from Tuss Group, the Applicant says that his wife “was also providing domestic duties associated with our family” which comprised the Applicant, his wife and two children. The Applicant says that he did not perform any domestic duties.[23]
(p)The Applicant has diabetes for which he takes conventional and non-conventional treatments including vitamins and supplements. Some of the treatments are expensive.[24]
(q)In addition to undertaking all of the domestic duties, the Applicant’s wife “permitted [the Applicant] and the children to reside in her property” (the Property).[25] 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.[26]
(r)The Applicant has not had a bank account for approximately 12 years and from 2008–2009, his income has been paid into his wife’s bank account or accounts (the wife’s account).[27]
(s)In the period from 1 January 2014 to 30 June 2017 the Applicant’s income was $256,494.63 from Tuss Concrete and Tuss Group, all of which was paid into the wife’s account. He says that any amount over that total was his wife’s income.[28]
(t)During that period no income was derived from trust distributions or income.[29]
(u)At not time did he make any payment to avoid creditors and the payments that he made to his wife were to satisfy the day to day living expenses of the family or were amounts properly due to his wife.[30]
(v)The Applicant estimates the value of the services provided by his wife to be $7,500 a month based on what he would have had to pay third parties to provide those services.[31]
(w)Had the Applicant chosen to pay for all of the family living expenses during that period all of his income would have been expended and there would be nothing for creditors.[32]
[23] A1 paras 33–4.
[24] A1 paras 35–9.
[25] A1 para 41.
[26] A1 40–2.
[27] A1 para 43.
[28] A1 para 44.
[29] A1 para 45.
[30] A1 para 50.
[31] A1 para 51.
[32] A1 para 52.
Many of the contentions in the Applicant’s statement of facts, issues and contentions (SFIC) were couched in terms of errors in the Respondent’s reviewable decision. 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.[33] Where the Applicant’s contentions and submissions have been couched in terms of the Respondent’s reviewable 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 of the Act.
[33] See Carter and Australian Securities and Investments Commission [2020] AATA 809 at [49]–[51] and cases referred to therein; see also Phillips and Inspector-General in Bankruptcy [2012] AATA 788 at [221].
On the basis, where applicable, of the above construction of the Applicant’s SFIC and supplementary submissions filed 1 December 2021, the Applicant’s case is set out in those two documents is as follows:
(a)The amount paid into the Applicant’s wife’s mortgage account was at all times less than the amount contributed by the Applicant’s wife into the wife’s account.[34]
[34] Applicant’s SFIC under heading “Contentions” para 2(a).
(b)The amount paid into the wife’s account that were acknowledged as funds of the Applicant’s wife at all times exceeded the amount paid into the mortgage account.[35]
[35] Applicant’s SFIC under heading “Contentions” para 2(b).
(c)The Applicant’s wife at all times had sufficient funds from her own resources in the wife’s account to satisfy the payments to the mortgage account.[36]
(d)The Applicant’s wife provided consideration for the payments by providing for the children and providing accommodation for the family which was the Applicant’s responsibility.[37]
(e)Payments made by the Applicant to his wife were not “a transfer of property”.[38]
(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.[39]
(g)If the payments had not been made by the Applicant to his wife’s account, it does not follow that the funds would have been available for the creditors of the Applicant.[40]
(h)The Applicant had an “ongoing relationship to maintain his wife and young children.”[41]
(i)The Applicant did not maintain his own bank account and had not done so for many years. It was common practice for the Applicant to deposit his funds into his wife’s account.[42]
(j)The Applicant’s wife did not know and could not have reasonably inferred that the Applicant’s main purpose in making payments was to prevent the money in question from being available to the Applicant’s creditors or to delay the availability of such funds to the Applicant’s creditors.[43]
(k)The Applicant’s wife could not reasonably have inferred at the time of the payments that the Applicant was about to become insolvent because he had not told his wife about the DPN, Tuss Group was trading well, and nothing had changed in the financial arrangements between the Applicant and his wife.[44]
(l)Without the Applicant’s contribution, the Applicant’s wife would still have been able to meet the mortgage payments and there is no evidence that there has been any capital gain on the Property.[45]
[36] Applicant’s SFIC under heading “Contentions” para 2(c).
[37] Applicant’s SFIC under heading “Contentions” para 2(d).
[38] Applicant’s SFIC under heading “Contentions” para 4.
[39] Applicant’s SFIC under heading “Contentions” para 5.
[40] Section 121 of the Act; Applicant’s SFIC under heading “Contentions” para 6.
[41] Applicant SFIC under heading “Contentions” para 7.
[42] Applicant’s SFIC under heading “Contentions” paras 8–9.
[43] Applicant’s supplementary submissions para 15(b).
[44] Applicant’s supplementary submissions para 15(c).
[45] Applicant’s supplementary submissions paras 16–17.
The Respondent’s SFIC sets out the Respondent’s case in relation to the objection made on the ground identified in s 149D(1)(ab) 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.[46]
[46] [2018] AATA 3739.
(b)The Respondent cites the Explanatory Memorandum to the bill by which s 149D(1)(ab) was introduced in the Bankruptcy Law Amendment Act 2002 (Cth).
(c)From the incorporation of Tuss Concrete in February 2009 until 23 November 2017, the Applicant was one of its two directors.[47]
[47] Respondent’s SFIC para 13(a).
(d)In February 2015 the ATO issued the Applicant with the DPN in the sum of $471,468 following Tuss Concrete’s failure to pay outstanding PAYG withholding tax obligations and liability which had first arisen on 3 July 2014.[48]
[48] Respondent’s SFIC para 13(b).
(e)On 17 November 2016 the ATO issued the Applicant with a second DPN in the sum of $700,444 following Tuss Concrete’s failure to pay its further outstanding PAYG withholding taxation obligations.[49]
[49] Respondent’s SFIC para 13(c).
(f)On 22 July 2019, the Applicant’s wife signed an “Authority to Operate” in which the Commonwealth Bank of Australia (CBA) was authorised to provide the Applicant with an authority to operate (i.e. either the Applicant or his wife could operate) six CBA bank accounts held in the Applicant’s wife’s name.[50]
[50] Respondent’s SFIC para 13(d).
(g)The Applicant held no bank accounts in his own name. Up until 6 October 2016, the Applicant received income paid into a CBA Mortgage Interest Saver Account (MISA) held in his wife’s name and thereafter, until 30 June 2017, his wife’s CBA Everyday Offset Account, being one of the six accounts referred to in (f) above.
(h)The MISA was an offset account linked to the Applicant’s wife’s CBA home loan in respect of the Property. The Applicant’s wife became the registered proprietor of the Property on 7 December 2010 with the CBA as mortgagee.[51]
[51] Respondent’s SFIC sub-paras 13(f) and (g).
(i)The MISA statements recorded that for the period 1 July 2014 to 30 June 2016, a total amount of $175,489 (which represented the Applicant’s income) was paid into the account. $177,678 which represented the Applicant’s wife’s income was paid into the account and $90,100 was paid from that account against the home loan for the Property.[52]
[52] Respondent’s SFIC para 13(h).
(j)As at 1 July 2014, the balance of the home loan for the Property was $360,805, which by 30 June 2016, had reduced by approximately $60,000.[53]
(k)The Applicant’s transfers of moneys (which I assume to be the payments of the Applicant’s income into MISA) had contributed to the increase in the wife’s equity in the Property.[54]
(l)At the time of the “Transfer of Property”[55] the Applicant had significant liabilities under the DPN with no resources to pay the debt and was insolvent at the time of the transfer.[56]
(m)In relation to the Applicant’s SFIC and supplementary submissions, the Respondent’s SFIC responded:
(i)A person’s contribution to a marriage may give rise to consideration, that is not the case in the present circumstances. In the present case, the Applicant and his wife enjoyed significant income. The Applicant’s financial and banking arrangements were intimately connected, and the Applicant’s wife would have been aware of the Applicant’s significant liabilities following his decision to utilise the wife’s account in order to avoid third party scrutiny.[57]
(ii)Even if it is the case that the Applicant’s wife used her income to pay the mortgage payments and the Applicant’s income was used to meet day-to-day family expenses, the legal position does not change because by meeting the day-to-day expenses, the Applicant was freeing up his wife’s income to meet the mortgage obligations.[58]
(iii)As a consequence of the Applicant paying his income into his wife’s account (i.e. the transfers), the Applicant’s wife has benefited by the increase in equity in the value of the Property.[59]
(iv)In relation to the difference between the original and current indebtedness in respect of the Property (i.e. increase in equity) under an action founded on s 121 of the Act, the Trustee would have a claim to an entitlement to the amount of the reduction in the loan in respect of the Property founded on half of the joint contributions between the Applicant and his wife.[60]
(v)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 in the form of direct financial contributions) and the family expenses of the Applicant and his wife (in the form of indirect financial contributions).[61]
[53] Respondent’s SFIC para 13(i).
[54] Respondent’s SFIC para 13(l).
[55] Although this term is capitalised by the Respondent in his SFIC, it is not a defined term. I assume it is meant to be a reference to a “transfer of property” for the purposes of s 121 of the Act.
[56] Again, while not explained by the Respondent, I assume that the “transfer” is a reference to the payments of the Applicant’s income into the MISA; Respondent’s SFIC para 13(n).
[57] Respondent’s SFIC para 27.
[58] Respondent’s SFIC para 28.
[59] Respondent’s SFIC para 29(a).
[60] Respondent’s SFIC para 29(b).
[61] Respondent’s SFIC para 29(c); citing ss 121A and 139CA(1)(a)(ii)
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.[62]
[62] Citing Michael John Fuller and Hugh Jenner Wily [1998] AATA 577.
(b)The standard of proof to be applied on a ground of objection is the balance of probabilities.
(c)The Applicant had not operated a bank account for many years prior to experiencing any financial difficulties. During the relevant period the Applicant carried on a course of conduct that he had followed for many years, in that his income was paid into the wife’s account. This was not a course of conduct that was implemented because of any potential financial difficulties faced by the Applicant.
(d)The Applicant suffers from diabetes. The particulars of the Applicant’s expenditure, disclosed by his affidavit evidence, show that the money that the Applicant expended on himself was largely related his diabetes.
(e)It is apparent from the evidence given by the Applicant that all his income during the relevant period was absorbed in meeting his and his family’s day-to-day expenses.
(f)The evidence established that the DOCA in relation to Tuss Concrete was agreed by all creditors and only failed because a settlement could not be agreed with the ATO, resulting in Tuss Concrete being placed into liquidation.
(g)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.
(h)Tuss Group was incorporated, and with advice from Oren Zohar (an insolvency expert), some of the operations of Tuss Concrete were then conducted through Tuss Group.
(i)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.
(j)This ground of objection should be set aside for any one or more of the following reasons:
(i)There has been no transfer of property for the purposes of s121 of the Act.
(ii)The funds transferred would not have been available to creditors of the Applicant as the proceeds were absorbed in meeting day-to-day living expenses.
(iii)The Applicant’s wife provided consideration for any funds she received equal to or in excess of the amount of the funds transferred, and she was not aware that the Applicant was insolvent or about to become insolvent.
(iv)The Applicant had a reasonable excuse for making the payments as he did not have a bank account and was following a long adhered to course of conduct.
The Respondent’s closing submissions were to the following effect:
(a)In relation to the Applicant’s reference to Fuller (see [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.
(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.[63]
[63] see Nguyen v Pattison [2004] FMCA 517.
(c)The identified grounds that were before the Tribunal[64] are all “special grounds”.
[64] Under s 149D(1)(ab) of the Act and the “Cancelled Grounds” under 149D(1)(d) and 149D(1)(e) of the Act.
(d)The practical effect of s 149N of the Act was relevantly explained in Caruana and Inspector-General in Bankruptcy[65] as follows:
[65] [2008] AATA 307.
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.[66]
[66] Caruana para 13.
(e)There is no inherent jurisdiction for the Tribunal to go outside the terms of s 149N of the Act.[67]
(f)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.[68]
(g)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.
(h)The Applicant’s counsel conceded that at the time of the transfers, the Applicant was insolvent.
(i)The evidence, including the minutes of the second creditors’ meeting of Tuss Concrete held on 20 November 2015 (attended by the Applicant and the Applicant’s wife by their proxy), show that the Applicant had no personal assets. The DOCA contemplated that an agreement would have to be reached with the ATO for the payment of the amount due under the DPN. The Applicant’s wife would have been aware of the Applicant’s dire financial circumstances as at November 2015, given the obligations of the proxy holder to report back to her.
(j)In view of the obligations of Oren Zohar, the proxy holder, who was also (at the relevant times) or remains 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 the Company on 20 November 2015, including been made aware of the Applicant’s acknowledged dire insolvency.
(k)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.[69]
(l)It is not open on the evidence to find that the funds transferred would not have been available to creditors of the Applicant (as claimed by the Applicant), as the proceeds were absorbed in meeting day-to-day living expenses.
(m)In relation to the Applicant’s contention that his wife provided consideration for the transfers through provision of accommodation, by amendments to the Act introduced in the Bankruptcy Legislation Amendment (Anti-Avoidance) Act 2006 (Cth), s 121 of the Act 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.
(n)The Applicant’s wife was not called to give evidence as to her knowledge of the Applicant’s insolvency and it is unlikely that any evidence she could have given would have assisted the Applicant in circumstances where it seems apparent that the Applicant’s wife was not able to meet the elements of s 121(4) of the Act: the burden under that section is on the transferee.
[67] Citing Wortman and Inspector-General in Bankruptcy [2021] AATA 2919 at [8].
[68] 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).
[69] Citing the principle in Jones v Dunkel (1959) 101 CLR 298.
OBJECTION BASED ON GROUND IDENTIFIED IN s 149D(1)(ab) OF THE ACT – CONSIDERATION
The issues for determination are dictated by the requirements of s 149N(1A). They are:
(a)whether the objection species 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[70] in some detail from [26] onwards. I agree with and adopt Deputy President Forgie’s analysis of those sections. As Deputy President Forgie noted at [28], a succinct statement of the operation of those sections is contained in the decision of Senior Member Friedman in Caruana[71] 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).
[70] [2010] AATA 875.
[71] Cited by the Respondent; see [23(d)] above.
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) 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:
that, 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.
The approach taken by Deputy President Hanger is consistent with para 52 of the Explanatory Memorandum 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) (see [14] 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 [17] above. 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 of the Applicant’s salary into the wife’s account. The Applicant does not dispute that the payments were made.[72] 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.
[72] A1, see [18(r)] above.
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 was “absorbed in meeting [day-to-day] expenses of himself and his family”.[73] At para 12 of his supplementary submissions, the Applicant makes the assertion that “[t]he payments (i.e. payment of his income into the wife’s account) would not have been available 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”. I do not accept that proposition. For a start, the only payments being considered were those of his income into his wife’s account, not the payments of his wife’s income into those accounts. Secondly, 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 his wife, whose income during the relevant period was similar to that of the Applicant? The incomes of both the Applicant and his wife were paid into the same account, used to pay living expenses and to meet the mortgage payments. There is no evidence to support the assertion that the money paid into the 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 salary paid into the same account was and could only be used to pay the mortgage on the Property. That is a post hoc construct with no legal or factual basis and does not reflect what actually happened.
[73] Applicant’s closing submissions para 45.
I find that there is evidence to support the case that the Applicant’s income paid into the wife’s account was, in part at least, used to meet the mortgage payments and to reduce the debt on the Property, which had the effect of increasing the Applicant’s wife’s equity in the Property, thereby putting the benefit of those funds beyond the reach of the Applicant’s creditors. The determination of the Trustee’s specific claims against the Applicant’s wife would be a matter for determination by a court exercising bankruptcy jurisdiction under the s 121 of the Act. 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 the Applicant’s wife’s equity in the Property, equity beyond the reach of the Applicant’s creditors.
I also accept that there is evidence to support the proposition that the reason that the Applicant paid money into his wife’s account was to prevent his income being divisible among his creditors or, at least, to delay those funds from being available to creditors. In that regard I note the advice in the Applicant’s solicitors’ letter dated 19 October 2020 to the Trustee, advising that the reason that the Applicant did not have a bank account in his own name was because the last account that he had in his name “was the subject of a garnishee notice issued by the Australian Taxation Office”.[74] In cross-examination, the Applicant’s evidence was that he thought that the reference to a garnishee order being made against his account “may have been a typo” and that it may have been his brother’s bank account.[75] Whether it was the Applicant’s bank account or his brother’s bank account is not relevant. What is relevant is that there is evidence that the Applicant appreciated that by using someone else’s bank account he was, or thought that he was, keeping the payments out of the reach of his creditors.
[74] R2/23.
[75] Transcript/64.
The Applicant conceded that he was insolvent at the time that the transfers were made. In opening Mr Gillon, quite correctly, made the following concession:
We don't say that he was solvent at the time these payments were made. So, no, we're not suggesting that he was solvent. We say that from the time that he received director penalty notices he would have been effectively insolvent.[76]
[76] Transcript/11.
Under s 121(2) of the Act, it can therefore be taken that the main purpose of the Applicant making the transfers, certainly at the latest from February 2015 when the first DPN was issued, 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 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.[77] 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, nor for the value of the Applicant’s contribution to the day-to-day chores undertaken around the house or in respect of the children. I also note that during the period when the Applicant’s wife was supposedly providing domestic services to a value of $7,500 per month (i.e. $90,000 per year), she was, according to the Applicant, employed by Tuss Group and receiving a salary close to that of the Applicant (see [18(n)] above).
[77] A1 para 51.
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.[78] Apart from the legal impediment to this argument posed by s 121(6)(e) of the Act, 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”. 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 nearly as much as the Applicant?
[78] Applicant’s SFIC para 2(d).
Further, as noted by the Respondent, 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 Explanatory Memorandum (EM)[79] as follows:
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).[80]
[79] Explanatory Memorandum, Bankruptcy Legislation Amendment (Anti-avoidance) Bill 2005 (Cth).
[80] EM para 22.
While in the present case the Property was not the “transferred property”,[81] the transfers of funds were used to at least partly fund the Property.
[81] Section 121(6)(e) of the Act.
I find that there is evidence to support a case that the Applicant’s wife has not provided consideration, which would satisfy s 121(4)(a) of the Act.
In an action by the Trustee under s 121 of the Act, a finding that the Applicant’s wife did not provide consideration, at least to the value of the payments made by the Applicant,[82] would mean that the Applicant’s wife could not avail herself of the defence under s 121(4) of the Act.
[82] Section 121(4)(a) 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 of 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 payment 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. In opening, Mr Gillon for the Applicant advised that:
We don't try and suggest that Mr Jack was solvent. What we do say though is that because of the way the companies were structured, and that Tuss Group was making payments, and that Mrs Jack was employed by Tuss Group - she was unaware of the full extent of Mr Jack's financial position. So she was unaware that he was likely to - or was - insolvent. He had not told her that he had received director penalty notices. So, as far as she was concerned, things were just carrying on as normal.[83]
[83] Transcript/11.
With respect, the above statement is couched in terms of what the Applicant’s wife had not been told and speculation as to what she did not know rather than what she did know. It is patently obvious that the best person to give evidence as to the Applicant’s wife’s knowledge is the Applicant’s wife. 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 have been the case.
The Respondent rightly 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 and, 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 paying his income 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 (see [18] above). Importantly, the Applicant’s wife (a creditor of the company) 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.[84] The documents placed before that creditors’ meeting also stated that the Applicant had no personal assets. The minutes of the second creditor’s meeting[85] also referred to the DPN issued against the Applicant by the ATO and the need to settle that debt for the DOCA to proceed.
[84] R3/15.
[85] R3/37.
As the Respondent has pointed out, Mr Zohar (as the Applicant’s wife’s proxy)[86] 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 accept that to be the case. 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.
[86] 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.
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 sum total of the Applicant’s excuse for making the payments which may be void because of s 121 of the Act is that “… he did not have a bank account and was following a long adhered to course of conduct”.[87] That is not an “excuse” for making the relevant payments, the main purpose and effect of which was to make funds unavailable to creditors. The conduct which must be explained is the conduct falling foul of s 121 of the Act. A statement that the Applicant made payments into his wife’s account bank because he chose not to have a bank account himself, does not explain “the conduct … that constituted the special ground.”
[87] Applicant’s closing submissions para 58(4).
The Applicant has failed to provide any real or reasonable “excuse” for the payments which are arguably void under s 121 of the Act. I therefore find that the third element of the prohibition on cancelling the objection under s 149N(1A) of the Act 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) 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.
Given my finding that the objection based on the ground identified in s 149D(1)(ab) of the Act cannot be cancelled, it is unnecessary to consider whether the objections based on the grounds identified sub-ss 149D(1)(d) and (e) of the Act should be cancelled.
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 56 (fifty-six) paragraphs are a true copy of the reasons for the decision herein of Deputy President Boyle
...[SGD].....................................................................
Associate
Dated: 8 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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