Karapatakis and Inspector-General in Bankruptcy
[2003] AATA 923
•19 September 2003
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2003] AATA 923
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2003/437
GENERAL ADMINISTRATIVE DIVISION ) Re EFTHYMIOS KARAPATAKIS Applicant
And
INSPECTOR-GENERAL IN BANKRUPTCY
Respondent
DECISION
Tribunal Mr RG Kenny, Member Date19 September 2003
PlaceBrisbane
Decision The Tribunal affirms the decision under review.
....................(Sgd).....................
RG Kenny
Member
CATCHWORDS
BANKRUPTCY – whether fees to Official Trustee should be waived or remitted – whether payment would impose undue hardship on the applicant – exceptional circumstances
Bankruptcy Act 1966 ss 153A, 163
Bankruptcy Regulations regs 16.07A, 16.13A, 16.13B,
Beadle v Director-General of Social Security (1985) 60 ALR 225
Re Exell and Inspector-General in Bankruptcy [2000] AATA 13
Re Faulkner and Inspector General of Bankruptcy [1998] AATA 632
Groth v Secretary, Department of Social Security (1995) 40 ALD 54Re Beadle and Director-General of Social Security (1984) 1 AAR 362
REASONS FOR DECISION
19 September 2003 Mr RG Kenny, Member Background
1. On 19 March 2001, Efthymios Karapatakis (the applicant) became bankrupt on his own petition in accordance with the terms of the Bankruptcy Act 1966 (the Act). The Trustee of the bankruptcy was the Official Trustee in Bankruptcy who, after administering the Estate, paid all creditors in full, which meant that the bankruptcy order was annulled in accordance with section 153A of the Act.
2. Section 163 of the Act provides for the remuneration of the Official Trustee and this is calculated in accordance with the Bankruptcy Regulations 1966 (the Regulations). On 14 April 2003, an officer of the Inspector-General in Bankruptcy (the respondent) determined that the fee payable to the Official Trustee by the applicant under the Regulations was $5,557.55 and that a further fee of $51.02 was payable by him in relation to interest accrued on a debt owed by him to the Commonwealth Bank in accordance with section 153A of the Act. That decision was affirmed by the respondent on 12 May 2003 and, on 22 May 2003, the applicant sought review of that decision by the Administrative Appeals Tribunal (the Tribunal) in accordance with the terms of regulation 16.13B of the Regulations.
3. The applicant attended the hearing and was not represented. The respondent was represented by Mr M Murray.
4.At the hearing, the following were taken into evidence:
Exhibit 1 - the T documents prepared in accordance with section 37 of the Administrative Appeals Tribunal Act 1975 (T1-T25);
Exhibit 2 - a statement, dated 18 August 2003, by Roderick Ernest Mumford of the Insolvency and Trustee Service Australia; and
Exhibit 3 - a statement of the chronology of events and fees paid in the bankrupt estate of the applicant.
Issues and Legislation
5. The annulment of a bankruptcy in the applicant’s circumstances is provided for in section 153A of the Act which reads:
“153A Annulment on payment of debts
(1) If the trustee is satisfied that all the bankrupt’s debts have been paid in full, the bankruptcy is annulled, by force of this subsection, on the date on which the last such payment was made.
(1A) In determining whether there has been full payment of a debt that bears interest, the interest must be reckoned up to and including the date on which the debt (including interest) is paid.
(2) The trustee must, as soon as practicable after that date, give to the Official Receiver a written certificate setting out the former bankrupt’s name and bankruptcy number and the date of the annulment.
(4) For the purposes of this section, if a debt has been proved by a creditor but the creditor cannot be found or cannot be identified, the debt may be paid to the Official Receiver and, if so paid, is taken for the purposes of this section to have been paid in full to the creditor.
(5) If money is paid to the Official Receiver under subsection (4), the Official Receiver must pay that money into the Consolidated Revenue Fund and the provisions of subsections 254(3) and (4) apply in relation to that money as if it had been paid into the Consolidated Revenue Fund by a trustee under subsection 254(2).
(6) In this section:
bankrupt’s debts means all debts that have been proved in the bankruptcy and includes interest payable on such of those debts as bear interest, and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee.”
6. The Trustee in this case was the Official Trustee in Bankruptcy and remuneration is provided for in section 163 of the Act which reads:
“163 Remuneration of the Official Trustee
(1) The Official Trustee is to be remunerated as prescribed by the regulations.
(2) An amount equal to each amount of remuneration received by the Official Trustee shall be paid into the Consolidated Revenue Fund.
Note: The prescribed remuneration may be in respect of work the Official Trustee does as trustee of the estate of a bankrupt or in respect of work done in any other situation under this Act (such as where the Official Trustee acts as a trustee as a result of a deed of arrangement).”
7. Sub-division 2.2 of the Regulations details the manner in which fees to the Official Trustee are to be calculated. Insofar as relevant, they read:
“Subdivision 2.2 - Fees payable to the Official Trustee
Table of Provisions
REG 16.07
Preliminary
For subsection 163 (1) of the Act, the fees set out in this Subdivision are prescribed as the remuneration of the Official Trustee.
16.07A Fees for acting as trustee, or for work under Part X or XI of Act
(1) This regulation applies if the Official Trustee:
(a) acts as trustee of the estate of:
(i) a bankrupt; or
(ii)a deceased person in respect of whose estate an order for administration has been made under Part XI of the Act; or
(b) performs work under Division 6 of Part IV of the Act; or
(c) acts, under Part X of the Act:
(i) as controlling trustee; or
(ii)as trustee, as the result of a deed of assignment, deed of arrangement or composition.
(2) Subject to regulation 16.07E, if this regulation applies, a fee equal to the total of the following amounts is payable, in respect of the estate or debtor, to the Official Trustee:
(a)$4 500 or, if the realised balance is less than that amount, the realised balance;
(b)16.26% of the amount by which the realised balance exceeds $4 500 (up to a realised balance of $50 000);
(c)10.84% of the amount by which the realised balance exceeds $50 000.
Example
The realised balance in respect of an estate is $75 000. The fee payable to the Official Trustee is $4 500 + (16.26% of $45 500) + (10.84% of $25 000), a total of $14 608.30.
Note The amount calculated under this subregulation includes a component to reimburse the Official Trustee for goods and services tax payable in relation to the provision of the Official Trustee’s services.
(3) However, subject to subregulation 16.07E (1), if a bankruptcy is annulled under section 153A or 153B of the Act, the fee payable to the Official Trustee for work performed is the greater of:
(a) $4 500; and
(b) the fee calculated under subregulation (2) in relation to the estate.
(4) A fee calculated under subregulation (2) is payable:
(a)if paragraph (1) (b) applies — out of the amount realised (within the meaning given by subregulation (5)) under Division 6 of Part IV of the Act; or
(b)in any other case — out of the estate.
(5) For subregulation (2) and regulation 16.07B, the realised balance in respect of an estate or debtor at a particular time is determined, subject to regulation 16.08, using the formula:
amount realised – (business costs + securities)
where:
amount realised means, subject to subregulations (6) and (7), the total amount realised, or brought to credit, in the estate or in respect of the debtor by the Official Trustee up to that time.
business costs means the amount paid by the Official Trustee in carrying on the business of the bankrupt, deceased person or debtor up to that time.
securities means the amount paid to secured creditors in respect of their securities up to that time.
(6) If, in connection with the estate of a bankrupt or deceased person:
(a)the bankrupt, or a person acting on behalf of the bankrupt or deceased person, applies property that has vested in the Official Trustee, by reason of section 58 of the Act, in payment of a creditor of the estate; and
(b)the Official Trustee is consequently prevented from realising or bringing to credit the value of that property;
the property so applied is taken, for subregulation (5), unless the Court otherwise orders, to have been realised or brought to credit by the Official Trustee.
(7) For subregulation (5), total amount realised or brought to credit:
(a) includes any amount that is:
(i)offered under a proposal for a composition or scheme of arrangement under Division 6 of Part IV of the Act; and
(ii)accepted by the creditors in accordance with subsection 73 (4) of the Act; and
(b) does not include any amounts paid to the trustee by creditors under:
(i)an indemnity in respect of costs; or
(ii)section 50 of the Act.”
8. Sub-Division 2.4 of the Regulations relates to the waiver and remission of fees and regulation 16.13A reads:
“16.13A Waiver or remission of fees by Inspector-General
(1) Subject to subregulation (2), the Inspector-General may waive or remit the whole or part of any fee.
(2) A fee may only be waived or remitted, whether wholly or in part, if the Inspector-General is reasonably satisfied that:
(a) payment of the fee by the person liable to pay it has imposed, or would impose, undue hardship on the person; or
(b) because of other exceptional circumstances, it is proper and reasonable to do so.
(3) For paragraph (2) (a), undue hardship means hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy.
(4) A decision under subregulation (1) must be notified in writing to:
(a) the person concerned; and
(b)except where the fee is payable to the Inspector-General — the officer to whom the fee is or, but for the waiver or remission, would be payable.
(5) In this regulation:
fee means a fee payable under a provision, other than regulation 16.04, of this Division.”
Applicant’s Evidence and Case
9. The applicant told the Tribunal that he became bankrupt on his own petition on 19 March 2001 and that he did this, in the main, as a reaction to his wife’s similar action. He said that he and his wife had been the joint tenants of their home which was mortgaged to the Queensland Housing Commission and that the Commission exercised its power of sale as mortgagee and paid the surplus to the Official Trustee. He understood that the Official Trustee paid all the outstanding creditors in full and he submitted that the overall fee of $5,557.55 was too high, given the size of the estate. He submitted that the fees should be waived for that reason and also because he was in financial hardship and suffering from health problems. He said that he had not been in employment for over three years and that he had suffered a stroke in April or May 2001. Since then he had been on social security payments.
10. The applicant said that the effects of his stroke were not severe but that he suffered some memory loss because of it and that he also suffers from vertigo and sleep apnoea. He said that he had high blood pressure in the past, but that it is currently under control on medication. He said that his financial circumstances made it difficult for him to provide himself with appropriate treatment. The applicant also said that he was suffering from the effects of the marriage breakdown with his wife.
11. The applicant said that he had three sons and that the youngest, who was still at school, was living with his mother and that he was not responsible for any regular payments to assist his son financially. He said, from time to time when he saw him, he would give him an amount in the order of $10. He said that his other sons were in employment.
12. The applicant said that he is living in rent-free accommodation with a friend but provides some financial support through the purchase of household supplies and food from time to time. He said that he was a qualified cabinet-maker and that he had worked in that field in the past. He also said that he had recently been contacted by a manufacturer and offered work which he intended to take up on a full time basis on the day following the hearing. He said that he was confident that he would be able to perform the tasks involved and that he would be earning a minimum of $550 per week with the prospect of earning up to $1,000 per week depending on his output.
Evidence of Roderick Mumford
13. Mr Mumford said that he was the Deputy Official Receiver in the office of the Official Receiver in Brisbane and that he supervised the administration of the bankrupt estate of the applicant. He adopted as being correct his statement (Exhibit 2) wherein he set out the activities that he undertook in the administration of the Estate. These were:
(i)“Examination of the bankrupt’s Statement of Affairs and determination of his liability to make income contributions, consideration of any possible bankruptcy offences and possible realisation action.
(ii)Reports issued to all creditors notifying them of the bankruptcy, summarising the Statement of Affairs and the trustee’s preliminary enquiries.
(iii)Contacted the Queensland Housing Commission (QHC) and confirmed that the property at Eversleigh Road, Scarborough was owned by the QHC subject to an exclusive occupancy agreement with Mr and Mrs Karapatakis.
(iv)Bankrupt informed of obligations and supplied with a copy of creditors’ report and ITSA charter.
(v)Enquiries carried out at the request of a creditor to determine accuracy of information contained in a loan application completed prior to bankruptcy and possible bankruptcy offences.
(vi)Reported to creditor and confirmed that there was no evidence of any bankruptcy offences.
(vii)Liaised with Queensland Housing Commission (QHC) about the sale of the Eversleigh Road property.
(viii)Receipt of advice from QHC that the house property was sold with surplus funds due to the estate.
(ix)Administration and accounting of trust funds from sale of property.
(x)Audited the file and reported to all known creditors of the trustee’s intention to pay a dividend and the requirement to lodge proofs of debt.
(xi)Carried out a Baycorp Advantage search for any undisclosed creditors.
(xii)Examined each proof of debt and determined the amount that could be admitted to rank for dividend.
(xiii)Verified that all known creditors had lodged in the estate.
(xiv)Calculated and declared the dividend.
(xv)Distributed funds to all proved creditors together with an account of receipts and payments in the estate and advised creditors of their right to claim interest from the date of bankruptcy to the date of the dividend payment.
(xvi)Verified and paid subsequent interest claim made by the Commonwealth Bank.
(xvii)Audited the file to determine that all debts, interest claims, costs, charges and expenses had been paid in full.
(xviii)Made a determination pursuant to section 153A(1) that the bankruptcy be annulled and advised the Bankruptcy Registry that the public record of Mr Karapatakis’ bankruptcy on the National Personal Insolvency Index (NPII) be amended to show the annulment.
(xix)Confirmed the annulment to Mr Karapatakis, issuing him with an NPII notice and associated documentation to allow him to contact Baycorp Advantage to amend his file with that organisation.
(xx)Interviews with the bankrupt and telephone conversations providing information in respect to QHC disposal of the house, paying dividends and appeals process for remission of fees.
(xxi)Issuing cheque for surplus of funds to bankrupt.”
14. Mr Mumford said that an amount of $20,726.37 was realised on the sale of the property by the Housing Commission and that this was paid to the Trustee and kept in the applicant’s Trust Account on his behalf. He said that these monies were used to settle the payments to unsecured creditors and that the overall liabilities were less than the realisation. He said that the bankruptcy was annulled on 21 March 2003. Mr Mumford said that the fees were calculated in accordance with the Regulations and that a surplus was paid to the applicant in the amount of $2,141.87.
Respondent’s Submissions
15. Mr Murray submitted that an important element of the administration of bankrupt’s estates was the need for the Official Trustee to be appropriately remunerated in accordance with the Regulations. He submitted that there are limits on the extent to which fees could be charged but that the scheme provided for in regulation 16.07A had been applied appropriately in this case. Mr Murray noted the applicant’s contention that the imposition of the fee was unfair because of the size of the estate but he submitted that, because there was a surplus in the applicant’s situation, it was important that the scheme in the Regulations be given effect. He submitted that, regardless of the size of the estate, there were still important tasks to be undertaken by the Official Trustee and that these had all been carried out with the result that the bankruptcy was annulled.
16. In relation to waiver or remission of the fee, Mr Murray accepted that the applicant had experienced some financial difficulties and health problems as well as emotional difficulties associated with the breakdown of his marriage. However, he submitted that none of these individually or in total constituted undue hardship as required in the specific terms of regulation 16.13A. He also submitted that there were no exceptional circumstances that would justify the debt being waived or remitted.
Consideration
17. It is not disputed in this case that the applicant became bankrupt on his own petition on 19 March 2001 or that the bankruptcy was annulled on 21 March 2003 with a surplus amount of $2,141.87 being paid to the applicant. It is also not disputed that the Official Trustee calculated a fee under regulation 16.07A of the Regulations for its administration of the estate.
18. The applicant has not disputed the amount of the fee and I am satisfied that it was calculated in accordance with the formula set out in sub-regulation 16.07A(2) of the Regulations and set out in the document tabled by the respondent at Exhibit 3. That Regulation provides for a fee that amounts only to the realised balance in an estate where that is less than $4,500 but that, where the realised balance exceeds that amount, as it did in the applicant’s case, for a sliding scale to be applied for the calculation of the fee. I accept the submission of Mr Murray that this fee must be imposed in circumstances where it is applicable to meet the costs of the Official Trustee.
19. In order to balance the imposition of the fee by the Official Trustee, regulation 16.13A of the Regulations enables the fee or part of it to be waived or remitted. There are two bases upon which this may be done. The first is where payment of the fee by the applicant would impose undue hardship on him and, in that context, undue hardship is defined in sub-regulation 16.13A(3) of the Regulations as meaning “hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy”.. The second basis is that there are other exceptional circumstances which make it proper and reasonable to waive or remit the fee. I am satisfied that, when considering the issue of undue hardship and also exceptional circumstances, the Tribunal is not limited to matters of a financial nature: see Re Exell and Inspector-General in Bankruptcy [2000] AATA 13 at paragraphs 25-26.
20. Prior to becoming bankrupt, the applicant was living with his wife in their own home which was subject to a mortgage but with low mortgage payments. He said that he was having no difficulty meeting those payments. Clearly, since then, his circumstances have changed and he is no longer in the same financial situation. In large part, that is due to and arising out of the normal course of his bankruptcy and, because of the definition of undue hardship in sub-regulation 16.13A(3) of the Regulations, that cannot be taken into account when considering whether or not he is in undue hardship. To some extent, his financial situation is also related to his health position. Nevertheless, this has stabilised to the point where he is now in a position where he is able to return to full time employment and he said that he would be doing this with reasonable remuneration immediately following the hearing. He has been in receipt of social security payments and is able to reduce his living expenses by sharing with another and without the need to contribute directly to rental costs or the support of his children. Further, he has already paid the fee in the sense that disbursement to him from the Official Trustee was the amount in excess of the obligations imposed by his bankruptcy. Those factors, plus the prospect of his employment, leave me reasonably satisfied that he is not suffering undue hardship that is unusual and exceptional in comparison to that associated with the normal course of bankruptcy.
21. The Act and the Regulations provide no guidance as to the meaning of the term special circumstances but the concept has been the subject of consideration in a range of legislative provisions relating to social security law. In that context, the Federal Court, in Beadle v Director-General of Social Security (1985) 60 ALR 225, stated that it was not possible to lay down precise limits or precise rules for the meaning of the term. The Court indicated that this would depend upon the circumstances of each particular case but commented that, even though the term lacks precision, it was sufficiently understood “not to require judicial gloss" (at 228). There, the Court affirmed the decision of the Tribunal (Re Beadle and Director-General of Social Security(1984) 1 AAR 362) where (at 364) the Tribunal had acknowledged that the term was "incapable of precise or exhaustive definition" and that, to be special, the circumstances must be “unusual, uncommon or exceptional” and must have a “particular quality of unusualness that permits them to be described as special". In Groth v Secretary, Department of Social Security (1995) 40 ALD 541, Kiefel J, after referring to the Federal Court's decision in Beadle’s case, observed (at 545) that special circumstances:
“…would require something to distinguish… [the]… case from others, to take it out of the usual or ordinary case. … It would of course follow that if one were to conclude that something unfair, unintended or unjust had occurred that there must be some feature out of the ordinary.”
22. These interpretations were utilised by the Tribunal in considering whether special circumstances arose under regulation 16.13A of the Regulations in Re Faulkner and Inspector General of Bankruptcy [1998] AATA 632 and I am satisfied that they are applicable in this matter.
23. In this case, the applicant has been through bankruptcy, but one which left him with a financial surplus. He has suffered ill health but this has now stabilised. He has been out of work but this is to be remedied after the hearing. He has experienced a breakdown of his marriage but I am satisfied that this factor and, indeed, the applicant’s circumstances taken as a whole, cannot be described as unusual, uncommon or exceptional.
24. I am satisfied that the payment of the fee would not impose undue hardship on the applicant so as to justify the exercise of a discretion in favour of waiving of the fee and I am also satisfied that there are no other exceptional circumstances which would justify doing so.
Decision
25. The decision under review is affirmed.
I certify that the 25 preceding paragraphs are a true copy of the reasons for the decision herein of Mr RG Kenny, Member
Signed: Sarah Oliver
AssociateDate of Hearing 28 August 2003
Date of Decision 19 September 2003
The Applicant appeared in person
For the Respondent Mr M Murray, Solicitor
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