Joseph and Inspector-General in Bankruptcy
[2005] AATA 640
•6 July 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 640
ADMINISTRATIVE APPEALS TRIBUNAL )
) No N2004/1644
GENERAL ADMINISTRATIVE DIVISION ) Re JOHN JOSEPH Applicant
And
INSPECTOR-GENERAL IN BANKRUPTCY
Respondent
DECISION
Tribunal Senior Member Robin Hunt Date6 July 2005
PlaceSydney
Decision
The Tribunal affirms the decision to reject the application to waive or remit the fees of the Official Trustee in Bankruptcy imposed in the administration of the Applicant’s three successive bankrupt estates, under Bankruptcy Regulations 1996 16.13A.
.....................[sgd].............................
Ms R Hunt
Senior Member
CATCHWORDS
BANKRUPTCY – Asset realised – Surplus - Application to waive or remit fees in the administration of the Applicant’s three successive bankrupt estates – Ill health - No undue hardship found – Decision affirmed to reject claim for waiver of fees incurred in the administration
LEGISLATION
Bankruptcy Act 1966 s153A
Bankruptcy Regulations 1996 16.13A
CASES
Exell and Inspector-General in Bankruptcy (2000) 30 AAR 320
Ayoub and Insolvency & Trustee Service Australia (Inspector-General in Bankruptcy) (2002) 70 ALD 513
Morgan and Inspector-General in Bankruptcy [2005] AATA 773
Clark and Inspector-General in Bankruptcy (2004) 78 ALD 517
Re Ganchov and Comcare (1990) 19 ALD 541
Bell and Inspector-General in Bankruptcy [2004] AATA 1035
Lopez and Inspector–General in Bankruptcy (2002) 70 ALD 595
Peets and Inspector-General in Bankruptcy (2002) 70 ALD 524
Faulkner and Inspector-General in Bankruptcy [1998] AATA 632
Karapatakis and Inspector-General in Bankruptcy (2003) 75 ALD 787
REASONS FOR DECISION
6 July 2005 Senior Member Robin Hunt BACKGROUND
1. Mr John Joseph, the Applicant, seeks review of a decision made by a delegate of the Inspector-General in Bankruptcy, the Respondent, on 29 November 2004. That decision was to reject Mr Joseph’s application for the waiver of the Official Trustee in Bankruptcy’s fees payable under Bankruptcy Regulation 16.13A.
2. Mr. Joseph has been made bankrupt voluntarily three times. He went bankrupt under section 55 of the Bankruptcy Act 1966 on his own debtor’s petition in 1987, 1996 and 2002. The Official Trustee in Bankruptcy administered Mr Joseph’s bankrupt estate on each occasion. Mr Joseph has been discharged from each of his bankruptcies after three years, under the automatic discharge provisions of section 149, but the bankrupt estates are awaiting finalisation pending the Tribunal’s review.
3. The Official Trustee has received no payment of fees as it was thought there were insufficient funds available at the time of Mr Joseph’s previous discharges to meet any fees. The Respondent’s estimate of fees payable in respect of the three bankruptcies is:
1987 bankruptcy $5,857.47
1996 bankruptcy $5,084.01
2002 bankruptcy $10,732.95
Total $21,674.43
4. Creditors have not been satisfied in full in any of the three bankruptcies. It was not until during the course of the administration of the third bankruptcy that the trustee became aware that Mr Joseph had an interest in his father’s estate. The value of this interest is $81,362.36 and might result in a surplus in each of the bankrupt estates and annulment of the bankruptcies under section 149 of the Act. This will be finally determined once the Official Trustee has established the proven claims.
5. It is not disputed that Mr Joseph’s father died in 1965 but his widow remained in the matrimonial home until her death in 2002. Mr Joseph claims that he did not realise he had an interest in the house until after his mother’s death. After her death, the house was sold in 2004, realising money for distribution among the heirs, who are Mr Joseph and his siblings.
6. The Respondent states that Mr Joseph failed to disclose his 1/6th interest in his deceased father’s estate but Mr Joseph says he did make disclosure although he thought his mother had a life tenancy in the house which meant he had no financial benefit until 2004. Once it became apparent that he would receive money from the estate, Mr Joseph applied for waiver of the Official Trustee’s fees under Bankruptcy Regulation 16.13A, on 23 August 2004, claiming that he would suffer undue hardship if the fees were deducted from his interest. Mr Joseph is in poor health and would like to use the money to move to the country where he believes his health would benefit. On 29 August 2004, the Respondent refused his application for waiver of the fees.
ISSUE
7. The Tribunal must decide whether to waive or remit the fees on the basis that it is reasonably satisfied that payment of the Official Trustee’s fees would impose undue hardship on “the person”, in this case said to be Mr Joseph, or if reasonably satisfied, because of other exceptional circumstances, it is proper and reasonable to do so.
Mr Joseph’s evidence
8. Mr Joseph told the Tribunal that he borrowed money and incurred liabilities which he could not repay in 1987 and 1996. He recounted various reasons why he had debts. Although he was employed at the time, he had too many liabilities and insufficient funds to meet them. He had decided his best course of action was to apply for bankruptcy. Mr Joseph again got into financial difficulty in 2002 when he lost his job. He gave evidence that he fell into the trap of borrowing from another source to try to repay his debts to outstanding creditors.
9. Mr Joseph went on to tell the Tribunal that he had two adult children and no dependents. He had separated from his wife about 28 or 29 years ago. Mr Joseph said he is no longer able to work and earn a living. When he wrote to the Respondent, on 23 August 2004, Mr Joseph revealed that he was being assessed for a disability pension. He gave evidence that at the time of the Tribunal hearing on 27 May 2005, he was now receiving a disability pension. Mr Joseph gave evidence that he lives with his nephew and his nephew’s wife and children. He explained that his nephew is a senior police officer and Mr Joseph feels that living with his nephew’s family is an inconvenience for them. Mr Joseph previously lived in his mother’s house until it was sold in 2004 and also has lived with his son and with his daughter for a time.
10. Mr Joseph provided medical evidence and oral evidence of his poor health. He said he would like to be able to work but no longer could work because his health had deteriorated badly since 2002. When giving evidence, he struggled at times with his breathing difficulties. He showed the Tribunal the various medications he needs to take. He relied at times on a nebuliser to administer his medication, which he had brought to the hearing. Mr Joseph hoped that his condition might improve if he moved out of Sydney and to a place where there was less pollution. He gave further evidence that he would like to move to the country and perhaps somewhere near his children who live in Newcastle. He expected rentals would be cheaper than in Sydney as well.
11. Mr Joseph also takes anti-depressant medication. He said that he felt guilty about his role in the sale of his parents’ house and that his siblings blamed him for this. There were six siblings sharing in the deceased estate, as demonstrated in the probated will, a copy of which Mr Joseph provided to the Tribunal. Mr Joseph said one of his brothers was also a bankrupt.
12. When it came to the reasons why he had not alerted the trustee to his interest in his father’s estate, Mr Joseph said that he had misunderstood his interest in his father’s estate because he had never seen the will and had not realised he had an asset for the purposes of the bankruptcy. He was further confused about his entitlement because the executor has hired a firm of solicitors to administer the deceased estate and he had assumed they would have had some contact with the trustee in the bankruptcy. Mr Joseph agreed that he had disclosed his interest in his father’s estate on one occasion when borrowing money. Mr Joseph denied that he had deliberately covered up his interest in his father’s estate. Mr Joseph also said that he had made an offer to the trustee in 2003 and that his nephew had been prepared at that time to borrow money to help him repay creditors. His offer would have given creditors 63c in the dollar but had received no response from the Official Trustee.
The Respondent’s evidence and submissions
13. The Respondent’s advocate indicated that Mr Joseph’s offer had not been accepted because its terms were not plain and the interest in the deceased estate was already vested in the Official Trustee under section 58. As well, the Respondent furnished its estimate of fees set out under the background above. The Respondent’s advocate further stated that it was likely that the bankruptcies would be annulled as the creditors in the earlier bankruptcies were now hard to contact and also would have difficulty proving any debt as they no longer had the records needed for proof. The Official Trustee has had to administer three successive bankruptcies where assets had come to light many years later where creditors were difficult to locate and assess.
LEGISLATION
14. Section 163 of the Bankruptcy Act 1966 (the Act) provides for the remuneration of the Official Trustee, which is to be calculated as prescribed by the regulations. Regulation 16.13A of the Bankruptcy Regulations 1996 provides for the waiver or remission of fees by the Inspector-General in certain circumstances:
(1) Subject to subregulation (2), the Inspector-General may waive or remit the whole or part of any fee.
(2) A fee may only be waived or remitted, whether wholly or in part, if the Inspector-General is reasonably satisfied that:
(a) payment of the fee by the person liable to pay it has imposed, or would impose, undue hardship on the person; or
(b) because of other exceptional circumstances, it is proper and reasonable to do so.
(3) for paragraph (2)(a), undue hardship means hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy.
DISCUSSION
15. As to who is liable to pay the Official Trustee’s fees, the Tribunal notes that the fees are payable by the bankrupt estate, not by Mr. Joseph. However, the bankrupt estate would be in a position to pay the fees only through utilising Mr Joseph’s interest in his father’s estate. As a result, it is Mr Joseph who would in effect be paying the fees. Conversely, if the fees were to be remitted, then Mr. Joseph would benefit by receiving payment of an additional surplus from the remitted fees, after the payment of the remaining percentage of the dividend to creditors, and any further costs or expenses.
16. Regulation 16.13A confers on the Inspector-General discretion to remit the whole or part of any fee if the Inspector General thinks that not remitting the amount would cause a person undue hardship or it is proper and reasonable to do so because of other exceptional circumstances.
17. In Bell and Inspector-General in Bankruptcy [2004] AATA 1035 , the Tribunal, Deputy President Jarvis and Member Trowse, considered s283 of the Act which confers a similar discretion on the Inspector-General to remit the realisations charge where undue hardship would otherwise ensue to “the person”. The Tribunal decided that section 283(1)(a) of the Act is intended to refer only to the hardship of the trustee. At paragraph 44 the Tribunal said:
“Counsel for the respondent also drew our attention to the Explanatory Memorandum for the Bankruptcy Amendment Bill 1996, which introduced s 283. This Memorandum says in respect of the then proposed s283 that, ‘(i)t will only be in exceptional circumstances that it would be appropriate (to remit the amount) such as in the case of a genuine and unavoidable error on behalf of the trustee.” This reference to the position of the trustee in conjunction with the scheme of the legislation, indicates that the section is intended to refer to hardship of the trustee, not the bankrupt. In the present matter, it has not been suggested that there is any hardship on the part of the Official Trustee, and of course this would be irrelevant to the position of Ms. Bell.”
18. However, in the cases of Exell and Inspector-General in Bankruptcy (2000) 30 AAR 320 and Ayoub and Insolvency and Trustee Service Australia (Inspector-General in Bankruptcy) (2002) 70 ALD 513, the Tribunal adopted the position that the term “a person” in s.283(1)(a) of the Act extends to any person, including the bankrupt.
19. The cases of Exell and Ayoub involved circumstances where creditors received 100 cents in the dollar and the surplus available to the bankrupt was accordingly reduced by the amount of the realisations charge. In those cases the Tribunal assessed the question of hardship in relation to the bankrupt, not the Official Trustee, in relation to the possible remission of the realisations charge. Similarly, in the more recent case of Morgan and Inspector-General in Bankruptcy [2005] AATA 773, Deputy President Muller held that the bankrupt applicant was the appropriate person to be considered. It has also been held in Clark and Inspector-General in Bankruptcy (2004) 78 ALD 517, that the person liable to pay the fee for the purposes of subregulation 16.13A(2)(a) is the bankrupt applicant and that is the person who should be accepted as the relevant person under the regulation. Also see comments of Deputy President Muller in Morgan as to the appropriate person for consideration under section 238.
20. I prefer the Tribunal’s interpretation in Clark, Morgan, Exell and Ayoub as giving the discretion a more meaningful effect than the interpretation suggested in Bell. I also note the desirability of having consistency in Tribunal decisions as observed by Deputy President Todd in Re Ganchov and Comcare(1990) 19 ALD 541 at 542.
Undue Hardship
21. The term “undue hardship” is defined in Regulation 16.13A(3) for the purposes of Regulation 16.13A(2)(a). It provides that “undue hardship” means:
“hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy”.
22. Mr Joseph claims that his ill health means that payment of the fees connected with his bankruptcies will cause him undue hardship. He has not claimed that bankruptcy in itself is an undue hardship. In fact, his bankruptcies have benefited him by freeing him of his debts on three occasions. Mr Joseph’s submission is that he is suffering undue hardship because of his illness and that his suffering might be less if he had enough money to move to a cleaner environment. Mr Joseph stated that the remission of the fees would enable him to move and therefore he qualifies for the remission of the fees. He has also mentioned that he is causing inconvenience to his nephew and family by living with them. He has asked the Tribunal to also take into account his depression which he believes is caused by guilt at causing the sale of the family home. This has resulted in resentment towards him from his siblings.
23. There is no doubt that Mr Joseph is suffering some hardship through his poor financial position and his poor health. It also may be that he would benefit from a country environment and being able to live closer to his children. He is paying board to his nephew at present and there is no information before the Tribunal as to any comparison of the costs of daily living and rent if Mr Joseph were to relocate.
24. I share the view of Deputy President Muller in Morgan that the undue hardship contemplated by the Regulations
“relates to the effect that the payment or non-payment of the fees would have on the life-style and living conditions of the bankrupt or ex-bankrupt”.
That is, whether the payment of the fees, or the remission of the fees, results in there being additional hardship that is unusual or exceptional and different to the usual financial hardship arising out of a bankruptcy.
25. Mr Joseph’s interest in his deceased father’s estate is $81,362.35, however it was explained by Mr Jones at the hearing that it was not entirely clear at this stage how much money would come to Mr Joseph if the fees were remitted and all of the bankruptcies were annulled. Mr Jones estimated that Mr Joseph could receive around $12,000 but this figure could be reduced to around $10,000 as creditors have the opportunity to lodge post bankruptcy interest claims.
26. Having extra funds would not, however, make much difference to his lifestyle. Mr Joseph now has a disability pension which will provide him with more financial benefits than previously. He has accommodation although he says he feels uncomfortable about imposing on his nephew and the family. His only wish is to relocate and Mr Joseph has not made out a convincing case that this will be difficult to achieve without the extra cash from the deceased estate. Mr Joseph suffers from no other major hardship or financial difficulties other than his ill health. He has no debts as a result of his several bankruptcies. He has no dependents to provide for. In my opinion, Mr Joseph would not suffer undue hardship if the fees were not remitted.
27. I have compared his situation with a number of other cases where undue hardship has been found and consider that those applicants who have been successful have been in a much more severe position than Mr Joseph. For example in the case of Lopez and Inspector-General in Bankruptcy (2002) 70 ALD 595, the Applicant was 77 years old and had dementia and depression. In Clark (supra), the Applicant had numerous serious medical conditions and his invalid wife, who was also sick with various incurable ailments, needed a new wheelchair. In Exell (supra), charges were remitted as the Applicant was in default of her mortgage payments and her only source of income was an invalid pension. As well, the Applicant was caring for her elderly mother, who also had health problems. In Peets and Inspector-General in Bankruptcy (2002) 70 ALD 524, the Applicant lived in a city where public transport was not readily available and would be detrimental to his ability to obtain work. In addition to this, the cost of administering funds was grossly disproportionate to the amount of funds being administered. Fees were not remitted in the cases of Faulkner and Inspector-General in Bankruptcy [1998] AATA 632, Ayoub (supra) and Karapatakis and Inspector-General in Bankruptcy (2003) 75 ALD 787, as the Applicants in these cases, like Mr Joseph, were unable to show severe debilitating illness, danger of losing accommodation, on-going liabilities after bankruptcy or dependents needing support.
28. I further note that the Official Trustee’s fees are not disproportionate in this case. The Official Trustee has had to administer three successive bankruptcies without being aware of the deceased estate entitlement of Mr Joseph and this has made the workload extremely heavy. Creditors are now hard to locate and much delving into past records is required. The fees are therefore not, in my view, disproportionate to the size of the estate or an excessive charge for work performed. This case is not the same as Peets for these reasons. I also find no other exceptional circumstances where it would be proper and reasonable to waive the Official Trustee’s fees.
DECISION
29. The Tribunal affirms the decision to reject the application to waive or remit the fees of the Official Trustee in Bankruptcy imposed in the administration of the Applicant’s three successive bankrupt estates, under Bankruptcy Regulations 1996 16.13A.
I certify that the 29 preceding paragraphs are a true copy of the reasons for the decision herein of Senior Member Robin Hunt
Signed: .....................................................................................
Zoe McDonald
AssociateDate/s of Hearing: 27 May 2005
Date of Decision: 6 July 2005
Solicitor for the Applicant: Self
Solicitor for the Respondent: Australian Government Solicitor
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