Levitan and Inspector-General in Bankruptcy

[2016] AATA 356

Levitan and Inspector-General in Bankruptcy [2016] AATA 356 (31 May 2016)

Division	TAXATION & COMMERCIAL DIVISION
File Number	2013/1287
Re	Warren Levitan
APPLICANT
And	Inspector-General in Bankruptcy
RESPONDENT

DECISION

Tribunal	Deputy President Bernard McCabe
Date	31 May 2016
Place	Brisbane

The decision under review is affirmed.

.................................[Sgd].......................................

Deputy President Bernard McCabe

Catchwords

BANKRUPTCY – decision not to cancel objection – whether applicant had interest in South African property – whether applicant intentionally provided false and misleading information to trustee – whether applicant failed to disclose beneficial interest in any property – decision under review affirmed

Legislation

Bankruptcy Act 1966 (Cth) ss 77, 149B, 149D(1), 149D(1)(da), 149D(1)(n), 149D(1)(ma), 149N, 149N(1A)

REASONS FOR DECISION

Deputy President Bernard McCabe

31 May 2016

1. Mr Warren Levitan became a bankrupt on 3 September 2009. His trustees objected to his discharge from bankruptcy under s 149B of the Bankruptcy Act 1966 (Cth) on 1 November 2012. The trustees relied on eight grounds referred to in s 149D(1) which arose out of Mr Levitan’s alleged failure to disclose information about his affairs. The Inspector-General affirmed the trustees’ decision on some (but not all) of those grounds. If the Inspector-General’s decision stands, Mr Levitan will not be discharged from bankruptcy until 2 November 2017.

2. Mr Levitan has asked the Tribunal to reconsider the Inspector-General’s decision not to cancel the objection under s 149N of the Act. I note some of the grounds for objection were special grounds within the meaning of s 149N(1A). If the objection on any one of those grounds is sustained, the decision-maker must not cancel the objection unless the applicant has a reasonable excuse for the conduct that constituted the special ground.

3. At the hearing, the parties focused on whether Mr Levitan had adequately disclosed his interest – if that is what it was – in a property or properties in South Africa. Mr Levitan said he had disclosed the existence of those properties, but denied he held an interest in those properties in any event. It was agreed I would proceed on the basis that if he succeeded, a further hearing would be convened to discuss the other grounds of objection.

4. I am satisfied the decision under review should be affirmed. I explain my reasons below.

   What happened?

5. The applicant was a property developer in South Africa before he emigrated to Australia in 1997. He was in the business of developing low cost housing estates. His firm owned or had interests in a number of properties, although some properties were held in his name. In his oral evidence, he explained he sold the business to a Mr Ovadia, who was a business associate. He said Mr Ovadia did not arrange a transfer of some of the properties held in Mr Levitan’s name; I was told Mr Ovadia was trying to avoid paying duty on the transfers. The applicant said it was agreed the properties would remain in the applicant’s name but that he would provide Mr Ovadia with a power of attorney that would permit Mr Ovadia to progressively transfer the lots from Mr Levitan to new owners when the properties were sold. At least some of the properties in question were located in Protea Glen Housing Estate. A copy of the power of attorney in favour of Mr Ovadia and another associate, Mr Van Zyl, was reproduced in Mr Levitan’s material: AC-11 of exhibit 5. I was not provided with any record of the agreement which led to the execution of the power of attorney.

6. Mr Ovadia was contacted by the trustee. Mr Ovadia denied he had ever acquired the Protea Glen properties from Mr Levitan: exhibit 11 at p 921. The respondent pointed out Mr Ovadia is a creditor who has claimed against the estate: exhibit 1 at pp 438ff. (Mr Ovadia claimed that debt arose in connection with the supply of a quantity of rubber brooms to Mr Levitan. Mr Levitan said in his evidence that the Ovadia claim was nonsense. The applicant said Mr Ovadia is giving false evidence to avoid being held accountable for his role in the demise of the property development business. Mr Levitan added he was unable to contact Mr Ovadia, and doubted Mr Ovadia would provide helpful evidence in any event because of personal animus.)

7. Mr Levitan explained in his oral evidence that he ceased having any involvement in the property business after he left South Africa. As far as he was concerned, he had no further interest in any of the properties that were sold as part of the larger transaction. He said he assumed the lots registered in his name at Protea Glen were progressively sold off by interests associated with Mr Ovadia. He did not pay any municipal taxes in relation to those properties or make any contribution to their maintenance and upkeep.

8. I was provided with evidence of proceedings brought by the liquidator of one of Mr Levitan’s former companies in the High Court of South Africa in 1999. The liquidator alleged Mr Levitan had misappropriated funds that were to be expended on the Protea Glen development. An email dated 4 February 2011 from a lawyer for one of the parties in those proceedings is reproduced in exhibit 13 at p 1187. The lawyer alleged Mr Levitan had been conveyed the Protea Glen estate as part of a property development being carried out with the lawyer’s clients. The lawyer alleged the applicant absconded with the joint venturers’ money and left the property behind. Mr Levitan disputes that account. In his oral evidence, he said the development collapsed as a consequence of the other parties’ mismanagement and suggested they were trying to shift responsibility for their failure to him. The rights and wrongs of those proceedings are not in issue here; they are of interest only because the court apparently recognised the applicant was the registered proprietor of properties in Protea Glen. Those properties were attached by the court as security for any liability that might arise in those proceedings: see exhibits 2, 3 and 4.

9. The applicant developed a number of properties in Australia after he arrived here. In time, he ran into financial difficulties. He was ultimately bankrupted in 2009. He was required to provide a statement of affairs to his trustees. The statement of affairs is dated 2 November 2009: exhibit 6 at pp 263ff. He did not mention the properties in South Africa in the statement. That is a problem because Question 28 asked: ‘Do you own, or are you buying, any land or buildings in Australia or overseas?’ He answered ‘No’. On p 20 of the document, he signed a declaration stating that the particulars set out in the statement were correct. Immediately above the declaration, there is a note warning it is a criminal offence to sign a declaration the person knows to be false. Mr Levitan also provided information at an interview that was used to complete a Questionnaire on 19 October 2009. He expressly denied owning any properties: Qs B1-B9 at exhibit 7 at p 323. At the end of the Questionnaire, Mr Levitan certified he had “fully answered each question to the best of my…knowledge and that the information provided is true and correct”: exhibit 7 at p 335.

10. Mr Levitan also failed to mention his involvement with the Protea Glen properties in his affidavit sworn in the Federal Magistrates Court in support of his application to set aside the bankruptcy: exhibit 1 at pp 336ff.

11. Mr Levitan said he had mentioned the properties in interviews conducted by officers employed by his trustees. Mr Levitan pointed out the trustees wrote to creditors on 7 December 2009 and advised of the existence of:

    Overseas real property

    The bankrupt has advised in his interview that he is the registered proprietor of real estate in South Africa. The bankrupt has failed to provide any details of this real estate. My investigations are continuing.

12. The trustees claimed they were referring to another property in that letter. In an email dated 22 February 2013 (exhibit 1 at p 1186), a partner of the trustees noted the applicant had disclosed the existence of an apartment that he had formerly owned with his wife in Victory Park, Johannesburg. That property had been sold in the course of matrimonial proceedings and the applicant had apparently agreed to provide information about that sale. A copy of the Application for Consent Orders in the Family Court of Australia which records the details of the settlement is reproduced in exhibit 14 at pp 1189ff. The partner suggested the trustee understood the applicant to be referring to the Victory Park property in the letter to creditors.

13. It is possible the applicant mentioned the existence of the Protea Glen properties in the course of interviews with the trustees’ staff. Mr Whyte, one of the trustees, said in his statement dated 1 May 2015 that the applicant did not mention the Protea Glen property at any point. But even if I accept the applicant did mention the property and that mention was overlooked by the trustees, the fact remains the applicant did not refer to an interest in the Protea Glen estate in the formal documents that he was required to complete as part of his duty of disclosure. I shall return to this issue below.

14. Mr Whyte explained in his statement that the trustees obtained orders from the High Court in South Africa on 4 December 2012 in relation to property at Protea Glen. The property was subsequently sold. But that was not the end of the matter: Mr Levitan’s then solicitor informed the Inspector-General in a letter dated 13 February 2013 of additional properties in South Africa that had come to light as a result of searches. Mr Levitan indicated at the hearing he had become aware at least three properties were still registered in his name.

15. Mr Levitan said he was not required to disclose the existence of the properties in any event because he did not hold a beneficial interest in those properties. He argued he was, in effect, a bare trustee of the property. I disagree. I explain my reasons below.

    The grounds for objecting to discharge

16. While the trustees objected to discharge on a number of grounds, the hearing focused on ground 2 and ground 7. I will deal with each of those grounds in turn.

    Ground 2: after the date of the bankruptcy, the bankrupt intentionally provided false or misleading information to the Trustee

17. Ground 2 is referred to in s 149D(1)(da). It is a special ground of objection under s 149N(1A). Section 149N(1A) says the objection must not be cancelled if there is sufficient evidence to support the existence of a special ground and:

    the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted the special ground.

18. The ground of objection in question here must be read in light of the bankrupt’s obligation to assist the trustee. That obligation is set out in s 77 of the Act. The system cannot function effectively unless bankrupts are open and honest with their trustees.

19. I note the statement of affairs does not ask whether the applicant held a beneficial interest in property. It asks whether he is the owner of any property. While Anglo-Australian law has never quite settled on a definition of ownership – the common law always focused on possession – I would have thought a registered proprietor of real property would have to answer in the affirmative if asked: ‘Do you own any property?’.[1] It is not as if Mr Levitan did not know about the property: his evidence is that he mentioned it to the trustees’ employees in the course of an interview. He said he did not disclose the existence of the property in the statement of affairs or the Questionnaire because he did not think he was obliged to do so.

    [1] The property in question was located in South Africa. Strictly speaking, the question of what he owned there would have to be answered with reference to South African law. But there is no suggestion the result would be any different.

20. I am satisfied the applicant’s failure to disclose the existence of the properties in his name – properties that were ultimately available to be realised by the trustees – was intentional. The statement of affairs was false or misleading as a result of that failure. The question then becomes: has the bankrupt satisfied me he has a reasonable excuse for the conduct?

21. I am not satisfied Mr Levitan has established he had a reasonable excuse for the conduct. He says he divested himself of the property, and points to the existence of the power of attorney. Maybe that is what happened. But there is no record of an agreement and the other party to the supposed agreement, Mr Ovadia, strenuously denied the story. Mr Ovadia’s account was supported by correspondence from a lawyer involved in the proceedings: exhibit 13 at p 1187. I would add that it seems unlikely Mr Levitan would strike an undocumented agreement in which he effectively left his affairs in the hands of others after leaving the country. Mr Levitan pointed out he would have realised the property to avoid bankruptcy if he thought he was entitled to it. Perhaps, but there may have been other reasons for him failing to realise the property at the relevant time.

22. Ground 2 is made out. The respondent’s decision not to cancel should be affirmed.

    Ground 7: the bankrupt intentionally failed to disclose to the trustee the bankrupt’s beneficial interest in any property

23. It is not necessary for me to address this additional ground of objection, but I will do so for the sake of completeness. It is based on s 149D(1)(ma). It is another special ground of objection.

24. I have already found I am satisfied the applicant consciously decided not to disclose the existence of an interest in the Protea Glen properties. While he argues he did not have a beneficial interest in the property because it had been conveyed to his business associate in 1997, the business associate expressly disavowed that claim, the High Court of South Africa had declared the assets to be the property of Mr Levitan, and the property was available to be realised by his trustees. On balance, I am satisfied Mr Levitan remained the beneficial owner of the properties. I do not think he had a reasonable excuse for that conduct. As I have already explained, I am not persuaded Mr Levitan could have genuinely believed he had divested himself of an interest in the property.

    Conclusion

25. The respondent referred to a third ground – ground 8 – at the hearing. That ground alleges the bankrupt failed, whether intentionally or not, to disclose to the trustee the bankrupt’s beneficial interest in the property. Ground 8 is based on s 149D(1)(n). It will be apparent from my findings in relation to the other two grounds that ground 8 is also made out. But s 149D(1)(n) is not a special ground. That means the trustees must be able to justify the objection with reference to a purpose of the legislation. As it happens, I think there is no difficulty in doing so. The applicant has not been sufficiently forthcoming about his assets. His evidence at the hearing revealed the existence of further properties that might be realised. In short, there may yet be information that would be valuable that will only be obtained if the trustee is able to require the bankrupt’s cooperation.

26. The respondent’s decision in relation to grounds 2, 7 and 8 are made out. Two of those grounds are special grounds. The objection cannot be cancelled. The decision under review must therefore be affirmed.

27.     I certify that the preceding 26 (twenty-six) paragraphs are a true copy of the reasons for the decision herein of Deputy President Bernard J McCabe.

........................[Sgd]............................

Associate

Dated 31 May 2016

Date of hearing	30 March 2016
Applicant	In person
Counsel for the Respondent	Ms C Gobbo