Lavin and Inspector-General in Bankruptcy
[2017] AATA 890
•16 June 2017
Lavin and Inspector-General in Bankruptcy [2017] AATA 890 (16 June 2017)
Division:Taxation & Commercial Division
File Number: 2016/3297
Re:Dolores Lavin
APPLICANT
AndInspector-General in Bankruptcy
RESPONDENT
DECISION
Tribunal:Mrs J C Kelly, Senior Member
Date:16 June 2017
Place:Sydney
The decision under review is affirmed.
.........................[sgd]...............................................
Mrs J C Kelly, Senior Member
CATCHWORDS
BANKRUPTCY – refusal of Inspector-General of Bankruptcy to review the Trustee’s decision – whether request for review of Trustee’s decision should be reconsidered –whether there are sufficient reasons to justify a review – whether applicant has a relationship or connection with her employer – whether applicant’s remuneration is reasonable remuneration – decision affirmed
LEGISLATION
Administrative Appeals Tribunal Act 1975 (Cth) ss 40A, 43
Bankruptcy Act 1966 (Cth) ss 139Y, 139ZA, 139ZD, 139ZE, 139ZF
CASES
Lavin v and Inspector-General in Bankruptcy [2016] AAT 798
REASONS FOR DECISION
Mrs J C Kelly, Senior Member
The decision under review
The applicant, Ms Lavin, became a bankrupt on 19 February 2015 after she presented a debtor’s petition. She is employed by DLM Australia Pty Ltd (DLM).
She was initially assessed by the Trustee in Bankruptcy (the Trustee) as having an annual assessable income of $84,600 per annum. The Trustee advised Ms Lavin in a letter dated 15 March 2016 that he had undertaken a reassessment of her employment at DLM and determined the income contribution assessment for the purposes of s 139Y(1) of the Bankruptcy Act 1966 (Cth) (the Act) would be an annual salary of $154,739 for each of the first two years of the bankruptcy.
Ms Lavin requested that the Inspector-General review the Trustee’s decision pursuant to s 139ZA(1) of the Act. In a letter dated 27 May 2016, the delegate of the Inspector-General in Bankruptcy (the delegate) notified Ms Lavin that he refused to conduct a review of the Trustee’s decision.
The practical effect of the Tribunal’s decision in Lavin and Inspector-General in Bankruptcy [2016] AAT 798 is that the reviewable decision in these proceedings is the respondent’s decision notified in the letter dated 27 May 2016 to refuse to conduct a review of the Trustee’s decision.
The relevant legislation
Following is a summary of the legislation relevant to this decision.
Section 139Y of the Act is headed: “Trustee may regard bankrupt as receiving reasonable remuneration”. The section provides:
(1) If:
(a)the bankrupt is engaging or has engaged during a contribution assessment period in employment or other work or in activities that resemble employment or other work; and
(b)the bankrupt does not receive or did not receive any remuneration in respect of the employment, work or activities or receives or received remuneration that is less than the remuneration (in this subsection called the reasonable remuneration) that:
(i) in the case of employment where an industrial instrument prescribes rates or minimum rates of salary or wages for the employment—might reasonably be expected to be or to have been received by the bankrupt in respect of the employment by virtue of the industrial instrument; or
(ii) in any other case—might reasonably be expected to be or to have been received by a person who engaged in similar employment, work or activities where there was no relationship or other connection between that person and the person for whom the employment, work or activities were carried out;
then, for the purpose of making an assessment, the trustee may determine that the bankrupt receives or received the reasonable remuneration in respect of the employment, work or activities.
(2) If:
(a)the bankrupt enters or entered during a contribution assessment period into any transaction that might reasonably be expected to produce or to have produced income; and
(b)the bankrupt does not derive or did not derive any income from the transaction or derives or derived income that is less than the income (in this subsection called the reasonable income) that might reasonably be expected to be or to have been derived if the transaction were or had been entered into at arm’s length;
then, for the purpose of making an assessment, the trustee may determine that the bankrupt derives or derived the reasonable income from the transaction.
[original emphasis]
Sub-section 139ZA(1)(b) of the Act provides that the Inspector‑General may review a decision of a trustee to make an assessment “if requested to do so by the bankrupt for reasons that appear to the Inspector‑General to be sufficient to justify such a review”.
Sub-section 139ZA(5) of the Act requires that the Inspector-General must, within 60 days after the request is made, decide whether to review the decision, and if so, make a decision on the review.
Section 139ZD of the Act provides:
On a review of a decision, the Inspector‑General has all the powers of the trustee and may either:
(a)confirm the decision; or
(b)set aside the decision and make a fresh assessment under subsection 139W(2).
The Inspector-General must give written notice of the decision refusing a bankrupt’s request to review a decision (ss 139ZE(1)). Section 139ZE(2) provides:
The notice must:
(a)set out the decision; and
(b)refer to the evidence or other material on which the decision was based; and
(c)give the reasons for the decision.
This Tribunal has jurisdiction to review a decision by the Inspector‑General refusing a request to review a reviewable decision (s 139ZF(b) of the Act).
Agreement between the parties
The parties agree that:
·If the applicant is successful, the Tribunal would decide to set aside the decision under review not to review the Trustee’s decision. The request for review of the Trustee’s decision would have to be considered again by the Inspector-General.
·The applicant’s request to the Inspector General for review was neither frivolous nor vexatious.
The evidence before the Tribunal
The evidence before the Tribunal included:
·a bundle of 303 pages provided to the Tribunal pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act);
·a statement from Ms Wenden; and
·a statement from Ms Lavin.
Consideration of the competing contentions
This Tribunal may exercise all the powers and discretions that are conferred by any relevant enactment on the person who made the decision (s 43(1) of the AAT Act). Therefore, it is for the Tribunal to determine whether there are reasons sufficient to justify a review (s 139ZA(1)(b) of the Act).
The applicant submitted that the only circumstance in which a decision may be made to refuse to review a decision is when the application is frivolous or vexatious. According to the applicant, it follows that because it is agreed that this application is not frivolous or vexatious, that is the end of the matter and the Tribunal must set aside the reviewable decision.
The Tribunal does not accept the applicant’s submission as to the construction of s 139ZA(1)(b) of the Act. The statute requires the decision-maker, the Tribunal in this case, to decide whether it is satisfied that there are reasons sufficient to justify a review. The Tribunal proceeds to consider the evidence and arguments put by the applicant.
The submissions made on behalf of the applicant, focussed on claimed deficiencies in the delegate’s reasons for decision, including:
·giving no reasons for declining to review the decision;
·failing to refer to relevant evidence;
·taking into account irrelevant information and giving that information too much weight;
·making findings which should not have been made when refusing to review the decision;
·making incorrect findings;
·making a decision on the review when claiming to refuse to review the decision;
·there was no suggestion that he had insufficient information to carry out the task;
·lack of procedural fairness;
·refusing to conduct a review because he was not provided with particular documents not in the possession or control of the bankrupt; and
·refusing to conduct a review because he did not have all possible information “relative to” to the review.
The applicant’s case to the Trustee, delegate and the Tribunal is that:
·Ms Lavin has no relationship or connection with her employer (s 139Y(1)(b)(ii)); and
·Her annual income of about $85,000 is not less than the reasonable remuneration.
Ms Lavin claims that her income from DLM is $84,600 for her role as Operations Manager, a lesser role than the role she occupied before she resigned as the sole Director of DLM on 21 January 2015. When she was the Director of DLM, she said that she was involved in the overall management of the business, took an active role in making strategic business decisions and was responsible for day to day management, including paying bills, invoicing and overseeing the payment of the business taxes, BAS Super and wages. In her role as Operations Manager she does not have those responsibilities and does not have access to or authority to give out the company’s financial records.
Ms Lavin claims that her current role as Operations Manager is to market her employer to new clients in Australia and the United States. She claims that she is responsible for creating ideas for the marketing and branding of DLM and DLMA for approval by the General Manager and/or director, for training staff in the company’s client booking and invoicing system, managing customer support and undertaking universal talent scouting, liaising with client artists, and the production of site jobs and budgets.
Ms Lavin claimed that she reported orally to the company’s General Manager, Ms Wenden, and that the duties of her previous position now fall within the responsibilities of the new director, Mr Pamboris, and Ms Wenden. She claimed that her salary has remained consistent between her previous and current roles except that currently she is not entitled to a company car, director’s fees or bonuses.
Ms Lavin provided an email dated 9 August 2016 from Mr Pamboris in which he advised her that he was declining her request for copies of financials from DLM and DLM Capital Pty Limited because he had been advised that he was not legally bound to supply it to her.
In her statement dated 17 August 2016, Ms Wenden described her role and duties as General Manager of DLM, including additional responsibilities following Ms Lavin’s resignation as Director. Ms Wenden stated that DLM employs seven staff and has a single Director, Mr Pamboris, and that Ms Wenden is a senior employee to whom lower level managerial staff, including Ms Lavin, report.
On 27 May 2016, the delegate found that there was a “relationship or other connection” between Ms Lavin and DLM within the meaning of ss 139Y(1)(b)(ii) of the Act, based on the following evidence:
·DLM stands for “Dolores Lavin Management”. She founded the company in 1990 according to the DLM website. On 18 September 2013 judgment was entered for two plaintiffs against Ms Lavin and Dolores Lavin Management Pty Ltd for $726,380.50 and interest on the judgment in the amount of $144,708.06 to the date of judgment. A costs order was also made against the defendants. That judgment debt was used to issue a bankruptcy notice on 1 October 2013. The debt has not been discharged and remains a provable debt in Ms Lavin’s bankruptcy.
·The company register maintained by the Australian Securities and Investment Commission (ASIC) shows that Ms Lavin sold all the issued capital to Mr Gertsos on 11 October 2013 but the ASIC Register was not updated until 17 February 2015. The consideration for the shares was $100. Mr Gertsos was DLM’s accountant. Ms Lavin remained a director of DLM until 21 January 2015.
The Tribunal understands that Ms Lavin does not dispute any of that evidence. She does dispute the delegate’s conclusion. His reasoning was:
Having regard to the closeness in timing of firstly, the judgement debt and the sale of the shares, and, secondly, the registration of the share sale, the resignation of the directorship, and the date of bankruptcy, I draw a conclusion that they are related or in fact causal. The delay in registering the purported share sale for over two years and in such proximity to Ms Lavin’s bankruptcy goes some way in impugning the bona fides of the transaction. The shares were sold to Bill Gertos who was DLM’s accountant at the time; this does not appear to be an arm’s length sale to an unrelated third party. The $100 consideration for the share sale also appears nominal or uncommercial.
The next issue considered by the Trustee and the delegate is whether Ms Lavin’s remuneration is reasonable remuneration. That required consideration of her role and then the appropriate remuneration for that role.
The Trustee, in an assessment dated 15 March 2016, reassessed Ms Lavin’s employment at DLM and determined the income contribution assessment as an annual salary of $154,739 because he had received information that the $84,600 annual assessable income did not reflect the amount that Ms Lavin should be paid, given her current role and level of responsibility.
The Trustee formed that view because of information:
·provided by two examinees during a public examination that indicated that Ms Lavin was an integral part of the business;
·provided by her lawyer in response to his query about her role in the business of DLMLA;
·on the DLM website which listed Ms Lavin as the Founder and Managing Director, and noted that she is “one of the most influential agents in the world”;
·and information on the DLMLA website that Ms Lavin is an internationally recognised business leader and that the business is staffed by her dynamic team.
The applicant submitted that the information on web-sites was puffery and out of date.
The Trustee’s query about Ms Lavin’s role in the business of DLMLA followed Ms Lavin’s request to travel, dated 4 January 2016, as part of her duties as an employee of “DLMAU” (DLM). The Trustee had previously granted permission for the applicant to travel overseas.
Ms Lavin’s lawyer provided the following information in response to the Trustee’s questions in an email dated 7 January 2016:
·The business activities of DLMLA, the petitioner for her US visa are:
…effectively the same as those of DLMAU, but located in Los Angeles…DLMLA is an extension of DLMAU Sydney, a successful and highly regarded talent agency of over 30 years standing; which has come to represent some of the most stellar ‘creatives’ across photography, hair, makeup, styling and other speciality production services. DLMLA provides unparalleled expertise, From –re- and post-production services to the greater media sphere, DLMLA encompasses a team of representatives, well-versed in many aspects, such as: artist consultancy, brand partnership, endorsement, negotiation, print, digital, and the burgeoning business of social media platform marketing.
·The ownership of DLMLA:
…is not necessarily known to our client, but she understands that the company is owned by DLMAU or entities associated with DLMAU.
·In relation to tasks, skills and activities:
The tasks, skills and activities which have on previous occasions, and should on this forthcoming occasion, be completed by our client are summarised as: Demonstrating excellence in key areas including artistic talent, talent identification and assessment, project management and creative business vision DLMLA will again benefit significantly from Ms Lavin’s considerable knowledge and experience at the cutting edge of the fashion industry, the uniqueness of which has been summarised to us as the type that cannot simply be learned or attained by the average agent or talent manager. Further, Ms Lavin has a trained eye for untapped opportunities and trends which, combined with her business savvy, have transformed her talent into major “players” in the fashion industry. This has allowed her to secure numerous book deals for her artists. We are instructed that Ms Lavin is hands on with all her staff in Australia and LA and exploits her high level communication and compelling negotiation skills with staff, client, talent and others. Whilst abroad Ms Lavin will continue her never ending pursuit to outreach every day to new clients, selling the agency’s team of talent and its producing skills to bring the US work to Australia and Australia to the US across many projects. Ms Lavin has also started two new divisions, Directors, Short Film & a bloggers division, which have not been previously done in California. Ms Lavin’s bi-monthly sit- down meetings with all staff, talent and clients, creating new strategies and techniques, is imperative to the agencies’ success.
·Ms Lavin is paid by DLMAU and “does not receive any entitlements from DLMLA”.
The evidence shows that Ms Lavin was required to travel to the US for business purposes on the following dates:
·9 April 2015 to 21 April 2015;
·20 June 2015 to 2 July 2015;
·3 October 2015 to 16 October 2015;
·20 January 2016 to 4 February 2016;
·20 April 2016 to 5 May 2016.
Both the Trustee and the respondent unsuccessfully sought to obtain copies of financial statements for DLM, apart from copies of 2013 financial statements for DLM and an associated company, DLM Capital Pty Ltd. The delegate commented that those documents show a company group with sales of over one million dollars and operations resulting in net profits and net assets of over $300,000. No additional financial statements for either of those companies were provided to the Tribunal, despite the power to summon a person to give evidence or produce documents in s 40A of the Administrative Appeals Tribunal Act 1975 (Cth). The Tribunal observes that either party could have utilised that power to obtain financial statements from DLM or associated companies.
Financial statements in respect of Ms Lavin before the Tribunal included:
·copies of tax returns for 2013, 2014 and 2015;
·PAYG payment summaries for 2014 and 2015;
·DLM payroll advices from 1 July 2015 to 30 June 2015;
·Westpac Choice bank statements from 29 November 2013 to 29 February 2016; and
·Westpac eSaver statements from 24 December 2013 to 24 March 2016;
Those documents support her case that she was paid around $85,000 per year by DLM.
In support of Ms Lavin’s case, evidence was provided that more than 15 applications were received for the role Ms Lavin currently holds at the advertised wage of $85,000, although the names of applicants could not be disclosed for privacy reasons. It was submitted that that evidence shows that wage is reasonable.
The only additional material before this Tribunal that had not been considered by the delegate were the statements by Ms Lavin and Ms Wenden referred to above.
The Trustee relied on two web-sites, PayScale and Glassdoor, for information about salary date and career research, to determine the reasonable remuneration. The Trustee relied on that information because he did not accept that Ms Lavin’s role is as she claims. Relevant to that conclusion was the information by Ms Lavin’s lawyer provided in the email of 7 January 2017 supporting her application for permission to travel. That information is consistent with the information on the web-sites.
The Tribunal does not accept the applicant’s complaints about legal or factual errors in the delegate's decision. Neither the delegate nor the Trustee has made a legal or factual error that needs to be corrected or reconsidered. The delegate has provided sufficient reasons for refusing to conduct the review. The delegate considered the material before him. It is for the bankrupt to provide sufficient reasons for a review. If the delegate was not provided with information that may have assisted his consideration because those documents were not in the possession of or under the control of the bankrupt, that is unfortunate for her, but having sought review in this Tribunal, the applicant has not utilised the Tribunal’s power to summon a person to give evidence or produce documents to provide additional financial information from her employer or associated companies. She cannot make the same complaint in this Tribunal.
The applicant has not provided new information to the Tribunal that needs to be taken into account and which may lead to a different conclusion. The new material provided to the Tribunal only repeats elements of the applicant’s claims already clear on the evidence before the respondent.
The Tribunal has considered all the material before it and the competing arguments, and does not consider that there are reasons sufficient to justify a review.
The decision under review is affirmed.
I certify that the preceding 42 (forty-two) paragraphs are a true copy of the reasons for the decision herein of Mrs J C Kelly, Senior Member
...............................[sgd].........................................
Associate
Dated: 16 June 2017
Date of hearing: 16 March 2017 Solicitors for the Applicant: Mr G McDonald, Gavin Parsons & Associates Counsel for the Respondent: Mr M J Heath Solicitors for the Respondent: Mr S Mullette, Matthews Folbigg Pty Limited Solicitors
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