KTXP and Inspector-General in Bankruptcy (Taxation)

[2017] AATA 1278

KTXP and Inspector-General in Bankruptcy (Taxation) [2017] AATA 1278 (16 August 2017)

Division:TAXATION AND COMMERCIAL DIVISION

File Number(s):      2016/3796

Re:KTXP

APPLICANT

AndInspector-General in Bankruptcy

RESPONDENT

DECISION

Tribunal:Senior Member J F Toohey

Date:16 August 2017

Place:Sydney

The Tribunal sets aside the decision under review and substitutes the decision that the realisations charge be remitted to the extent of $15,000. 

...................[sgd]...................

Senior Member J F Toohey

CATCHWORDS

BANKRUPTCY – realisations charge – whether charge should be remitted – whether applicant had standing to bring the application for review – applicant a creditor – whether failure to remit would cause the applicant undue hardship – whether appropriate to remit – decision under review set aside

LEGISLATION

Administrative Appeals Tribunal Act 1975 (Cth) ss 27, 35

Bankruptcy Act 1966 (Cth) s 283
Bankruptcy (Estate Charges) Act 1997 (Cth) ss 6, 7, 8

Bankruptcy Regulations 1996 (Cth) reg 16.11

CASES

Exell and Inspector-General in Bankruptcy [2000] AATA 13

Huston and Inspector-General in Bankruptcy [2007] AATA 1658
Peets and Inspector General in Bankruptcy [2002] AATA 486
Re Lopez and Inspector-General in Bankruptcy [2002] AATA 1198

Shea and Inspector-General in Bankruptcy [2003] AATA 351

REASONS FOR DECISION

Senior Member J F Toohey

16 August 2017

BACKGROUND

1. This decision concerns an application under s 283(2) of the Bankruptcy Act 1966 for remission of the realisations charge payable in a bankrupt estate.

2. Section 6 of the Bankruptcy (Estate Charges) Act 1997 relevantly provides that a realisations charge is imposed in respect of amounts received by a person who, during a charge period, is the trustee of the estate of a bankrupt under the Bankruptcy Act 1966. The realisations charge is, in effect, a levy on administrations under the Act.

3. By s 283(1) of the Bankruptcy Act 1966, the Inspector-General in Bankruptcy (the respondent) has power to remit a realisations charge in certain circumstances. The respondent has declined to do so in this case.

4. The circumstances of this case are unusual. The applicant suffered serious, permanent injuries in a horrific assault some years ago. The assailant, who subsequently became bankrupt, was sentenced to a lengthy term of imprisonment. I will refer to him as the bankrupt.

5. The applicant commenced proceedings against the bankrupt in the District Court for damages for personal injury and for a freezing order over a residential property in his name. The Court awarded her $295,000 in damages plus interest and costs. She did not pursue the freezing order after the bankrupt signed consent orders undertaking not to sell or encumber the property.

6. Contrary to the consent orders, the bankrupt transferred the property to another person, purportedly for an amount equivalent to the damages award. The applicant brought proceedings in the Supreme Court for declarations that the transfer was made with intent to defraud and was void, and for an order that it be set aside. The Court found the purpose and effect of the transfer was to impede the applicant’s pursuit of a civil remedy and made the orders sought.

7. The applicant was subsequently awarded costs of the District and Supreme Court proceedings in the amount of $214,124.88.

8. The bankrupt was made bankrupt and his property was sold. The applicant lodged a Proof of Debt in the amount of $514,430.85 being the amount of the damages award plus her costs. After payment of the trustee’s remuneration and legal expenses, and allowing $30,232.97 on account of the realisations charge, the dividend payable to the applicant was $293,627.88. After payment of legal and associated costs, she was left with approximately $6,000.

   THE DECISION UNDER REVIEW    

9. Section 283(1) provides:

   The Inspector-General may remit an amount of interest charge, realisations charge or late payment penalty that is payable but has not been paid if the Inspector-General thinks that:

   (a)failure to remit the amount would cause a person undue hardship; and

   (b)it is appropriate to remit the amount.

10. On 8 January 2016, the trustee of the bankrupt’s estate applied to the respondent on behalf of the applicant for remission of the realisations charge. The application relied on submissions prepared by the applicant’s then legal representatives.

11. It was submitted that the applicant had suffered serious physical and psychological injuries, and the prolonged nature of the legal proceedings necessitated by the bankrupt’s conduct had caused her additional anguish. It was submitted that, had he not disposed of his property contrary to his undertaking, the sum of the judgment and costs in her favour would likely have been satisfied almost, if not entirely, in full. It was submitted that payment of the realisations charge would further reduce the insufficient monies available to satisfy that sum, and its remission would assist in meeting the applicant’s considerable medical expenses resulting from her injuries.

12. On 22 June 2016, the respondent refused the application.

    THE ISSUES

13. There is no dispute that the realisations charge in this case is payable but has not been paid. It is not in dispute that the amount of the charge was correctly calculated as seven per cent of the total amount of receipts from the bankrupt’s estate in accordance with sections 7 and 8 of the Bankruptcy (Estate Charges) Act 1997.

14. I have to determine whether the discretion to remit the realisations charge should be exercised. That requires me to determine whether failure to remit the charge would cause the applicant undue hardship and whether it is appropriate to remit it.

15. The applicant asked to be represented at the hearing by her father because she did not feel she could face attending in person. She was available by telephone if required but neither the respondent nor the Tribunal considered it necessary to hear from her. The facts are not in dispute. The matter was dealt with by way of submissions.   

    STANDING

16. A preliminary question arose, being whether the applicant has standing to bring this application for review.   

17. The realisations charge is imposed on the person who, during a charge period, is the trustee of a bankrupt estate: s 6 of the Bankruptcy (Estate Charges) Act 1997. Section 283(2)(a) of the Bankruptcy Act 1966 provides that “the person liable to pay the charge … may apply for a remission”. By s 283(2)(d), application may be made to the Administrative Appeals Tribunal for review of a decision to refuse an application.

18. On its face, s 283(2)(a) suggests that only the trustee, as the person liable to pay the charge, can seek review by the Tribunal of a decision to refuse remission. However, s 283(2)(d) must be read with s 27(1) of the Administrative Appeals Tribunal Act 1975 which provides that application may be made to the Tribunal for a review of a decision by or on behalf of any person whose interests are affected by the decision.

19. In Huston and Inspector-General in Bankruptcy [2007] AATA 1658, Deputy President Hack expressed the view, without finding it necessary to decide, that the bankrupt in that case, as a person whose interests were affected by a decision refusing to remit a fee payable to the Official Trustee, would have a right to apply to the Tribunal for review: at [21]-[22].

20. As a creditor in the bankrupt’s estate, the applicant is affected by the decision under review in that remission of the realisations charge would make that amount available for distribution among the bankrupt’s creditors including her. I am satisfied that, as a person affected by the respondent’s decision, she has the right to bring this application.

    UNDUE HARDSHIP

21. “Undue hardship” is not defined for the purposes of s 283(1). Previous decisions of the Tribunal are of limited assistance, in part because the Bankrutpcy Act 1966 and regulations have been amended several times, and because of the inevitable variety of individual circumstances. Moreover, they consider the hardship that might be caused to a bankrupt rather than, as here, a creditor.

22. Some guidance may be found in regulation 16.11(3) of the Bankruptcy Regulations 1996 which defines “undue hardship” for the purposes of waiver or remission of any fee as “hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy”. Any guidance is limited, however, because a realisations charge is not a fee as defined in regulation 16.11(5) for the purposes of exercising that particular power.

23. That said, the definition is helpful insofar as it underlines that “undue hardship” requires something more than the hardship that ordinarily falls on a bankrupt and, in most cases, creditors, by virtue of the bankruptcy itself.

24. In Huston (above), the Tribunal considered remission of a fee payable to the Official Trustee under regulation 16.07A (as it then was). For that purpose, “undue hardship” was defined in the same terms as in paragraph 22 above. Deputy President Hack observed, at [25], that decisions in which the Tribunal had been called upon to consider “undue hardship” do not establish any particular pattern. He observed, however, that:

    …one starts from the proposition that generally bankruptcy will have a debilitating effect upon those who attain that status. … Frequently, the inability to pay debts will be caused by, or associated with, personal misfortune. 

25. In a similar vein, the respondent’s delegate, rejecting the application in this case, observed that “it is not uncommon for a creditor in a bankruptcy to suffer loss as a result of the bankrupt dissipating his or her property prior to bankruptcy with the intention to defeat creditors”. That is true, although I would add that merely because something is not uncommon does not mean it does not cause undue hardship in a particular case. 

26. Hardship is not confined to financial hardship. In Exell and Inspector-General in Bankruptcy [2000] AATA 13, the Tribunal observed at [26]:

    Hardship may impact in a number of ways. At a personal level a person may suffer an emotional drain, loss of enjoyment of life or social dislocation. A person’s age and state of health may be relevant factors. It may, in the case of a person suffering from a physical or mental disability or condition, impact adversely on coping strategies or on a treatment regime for the disability. These are not only subjective perception of hardship but in my view matters which an informed bystander would take into account. Put another way, the question of whether hardship exists is not necessarily answered simply by considering a person’s financial position and examining a statement of assets and liabilities.

27. Turning to its ordinary meaning, the New Shorter Oxford Dictionary defines “undue” as:

    2. That ought not to be or to be done; inappropriate, unsuitable, improper, unrightful, unjustifiable. 3. Going beyond what is warranted or natural; excessive, disproportionate.

28. In Re Lopez and Inspector-General in Bankruptcy [2002] AATA 1198, the Tribunal adopted the definition above and considered whether payment of fees to the Official Trustee would be “inappropriate or unjustifiable or unwarranted or excessive or disproportionate” and so cause the applicant undue hardship. To my mind, those are appropriate descriptions against which to consider whether the discretion to remit a charge should be considered.

29. Section 283(1) contemplates prospective undue hardship causally related to the failure to remit the realisations charge. It is not enough that an applicant has suffered, or will in future suffer, undue hardship. The undue hardship must flow from the failure to remit the realisations charge. Notwithstanding the severity of hardship suffered in the past by an applicant, the Tribunal cannot take a compensatory approach to the exercise of the discretion.

30. The applicant’s father has referred to the decision in Shea and Inspector-General in Bankruptcy [2003] AATA 351, in which the Tribunal said at [59] it could find no authority for the proposition that the undue hardship had to be caused by the imposition of the relevant fee. If that is what the Tribunal meant, I respectfully disagree. It seems to me that the authority was found in the language of the legislation at the time which I read as requiring a causal connection. In any event, the legislation has since been amended.

31. With reference to the need for a causal link, the applicant’s father also referred to Peets and Inspector General in Bankruptcy [2002] AATA 486 in which the Tribunal said at [51]:

    I do not accept the principle that a person who is already suffering financial hardship before a fee is paid, is necessarily excluded from the benefit of the waiver provision. The evidence before me is that the applicant's financial situation has been precarious and ongoing, and that the payment of the fee has caused protraction of that situation.

32. I do not read that passage as standing for the proposition that there need be no causal link between the failure to remit and the undue hardship. Rather, it states what seems to me unarguable, that merely because a person has already suffered hardship, she or he is not excluded from suffering further (causally related) hardship.

33. In summary, in my view the exercise of the discretion in s 283(1) requires the Tribunal to be satisfied that the failure to remit the realisations charge will cause the applicant hardship that is inappropriate, unjustifiable, unwarranted, excessive, or disproportionate beyond that which she would ordinarily suffer as a creditor.

    WOULD FAILURE TO REMIT THE REALISATIONS CHARGE CAUSE THE APPLICANT UNDUE HARDSHIP?

34. For reasons of her safety, the Tribunal has made an order under s 35 of the Administrative Appeals Tribunal Act 1975 prohibiting the publication or other disclosure of information tending to reveal the applicant’s identity. As a result, it is not possible to include in this decision details of the attack or its effects on the applicant.

35. The Victim Impact Statement read to the sentencing court on the applicant’s behalf and her submission to the Parole Board are before the Tribunal. They detail the attack and its consequences. In a written submission to the Tribunal, the applicant describes in detail the horrific injuries she sustained and their lasting effects. It is readily apparent that her sense of loss is acute and her grievance extreme.

36. There is no question that the applicant has suffered severe physical, psychological and financial hardship as a result. She remains physically and psychologically scarred. The attack changed her life. She was unable to work for some years; she could not face living in her home where the attack occurred and had to sell it; it is now valued at twice what she sold it for and she cannot afford to buy another. She gave up a good job and moved interstate for fear of confronting her attacker after he was released on parole. She was unable to find work interstate and moved back to live with her parents. She now works part-time. She has continuing medical costs as a result of her injuries.

37. The applicant is understandably aggrieved by the many ways in which the attack has changed her life. Moreover, the bankrupt’s actions in deliberately attempting to defeat her pursuit of a civil remedy led directly to her incurring substantial legal costs, largely negating the benefit of the damages award.

38. The discretion in s 283(1) is not there to compensate an applicant for past wrongs or for their continuing effects. However, I am satisfied that failure to remit the realisations charge will cause the applicant undue hardship.

39. The respondent submits that the applicant has the benefit of living with her parents and not paying rent and utilities. That is so but, even then, her expenses exceed her part-time income each month. Moreover, her father says she wants to move out and be independent and when she is able to do so, she will have to meet those costs. Her parents lent her approximately $15,000 of which $5000 remains owing but her money is now dissipating at a rate that makes repayment difficult. Her parents require her to repay the balance. Her father is retired and her mother is about to retire, and her father says they cannot continue doing what they have been doing. Insofar as failure to remit the realisations charge will add to her financial burden, I am satisfied that it would cause her unjustifiable and excessive hardship.   

40. The applicant cites as a liability an amount of $10,000 which she received under a statutory victims’ compensation scheme. She understands that she is required to advise the Commissioner of Victims Rights if she receives the benefit of any remission of the realisations charge. There is limited information before the Tribunal about this but a Notice of Decision dated 16 May 2017 by a client claims assessor states that the applicant is not required to refund any amount of victims support previously awarded. On that basis, it appears reasonably clear that she has no liability to repay any of the amount she received under that scheme. I have therefore not taken it into account in reaching my decision.

41. I am satisfied that failure to remit the realisations charge would increase the financial burden that the applicant bears as a result of the attack well beyond the burden that bankruptcy might ordinarily impose on a bankrupt or a creditor. In particular, I am satisfied she would suffer undue hardship in repaying the debt owing to her parents without the benefit of remission of the charge in that amount. I am satisfied that repayment would virtually deplete her funds and make moving out and establishing herself all but impossible without a further loan from them. I am satisfied that it is appropriate to remit $5,000 on account of that debt.

42. I am also satisfied that failure to remit the charge would exacerbate the applicant’s sense of grievance well beyond that which disappointed applicants to the Tribunal commonly feel and would itself cause her undue emotional and psychological hardship.

43. It is one thing to calculate with some precision an amount appropriate to remit on account of undue financial hardship. It is another to find a clear basis for calculating an amount appropriate to remit on account of undue physical, emotional or psychological hardship. Doing my best, I am satisfied that it is appropriate to remit an additional $10,000 of the realisations charge such that a total approximately equivalent to one-half of the charge is remitted.   

    IS IT APPROPRIATE TO REMIT THE CHARGE?

44. I am not aware of a decision in which the Tribunal has considered what makes it appropriate to remit a realisations charge separate from deciding that failure to do so would cause the applicant undue hardship. It seems to be taken to follow from a finding that undue hardship will be caused that it is appropriate to do so.

45. I am satisfied that remission of approximately one-half of the realisations charge in this case is appropriate. It strikes a balance between the policy objective of imposing the realisations charge and the discretion in s 283(1) to remit an amount of the charge in an appropriate case.

    CONCLUSION

46. For these reasons, I am satisfied that failure to remit the charge would cause the applicant undue hardship and that it is appropriate to remit the realisations charge to the extent of $15,000.

47. The decision under review is set aside and the decision is substituted that the realisations charge be remitted to the extent of $15,000.

I certify that the preceding 47 (forty-seven) paragraphs are a true copy of the reasons for the decision herein of Senior Member J F Toohey

...................[sgd]...............................................

Associate

Dated: 16 August 2017

Date(s) of hearing:	18 July 2017
Advocate for the Applicant:	Mr KTXP
Counsel for the Respondent:	Mr M Heath
Solicitors for the Respondent:	Mr H Vijaykumar, Australian Government Solicitor