Lopez and Inspector-General in Bankruptcy
[2002] AATA 1198
•22 November 2002
DECISION AND REASONS FOR DECISION [2002] AATA 1198
ADMINISTRATIVE APPEALS TRIBUNAL )
) No V02/566
GENERAL ADMINISTRATIVE DIVISION )
Re CONCHITA LOPEZ
Applicant
And INSPECTOR-GENERAL IN BANKRUPTCY
Respondent
DECISION
Tribunal Mrs Joan Dwyer, Senior Member
Date22 November 2002
PlaceMelbourne
Decision The Tribunal sets aside the decision under review and in substitution decides that the whole of the fee of the Official Trustee is waived.
(Sgd) Joan Dwyer
Senior Member
BANKRUPTCY – waiver of fees of Official Trustee – whether payment of fees would impose "undue hardship" – meaning of "undue hardship" – nature of debts – doubt as to existence of debts claimed by Official Trustee to remain outstanding – time since applicant was made bankrupt and discharged from bankruptcy and since Official Trustee appears to have been released from being Trustee of her estate – whether there are other exceptional circumstances which make it proper and reasonable that the Official Trustee's fee be waived – lack of any realisation – approach adopted by Official Trustee – decision set aside – whole of the fee of the Official Trustee waived
WORDS AND PHRASES – "undue hardship"
Bankruptcy Act 1966 ss 152, 153, 153A, 184A(2)
Bankruptcy Regulations 1966 8.14(1) and (2), 16.07, 16.08, 16.10, 16.11
Re Faulkner and Inspector-General in Bankruptcy (AAT 12950, 3 June 1998)
Re Ayoub and Insolvency and Trustee Service Australia (Inspector-General in
Bankruptcy) [2002] AATA 465
Re Peets and Inspector General In Bankruptcy [2002] AATA 486
Re Beadle and Director-General of Social Security (1984) 6 ALD 1
Beade v Director-General of Social Security (1985) 7 ALD 670
REASONS FOR DECISION
22 November 2002 Mrs Joan Dwyer, Senior Member
This is an application under Regulation 16.11 of the Bankruptcy Regulations ("the Regulations") made under the Bankruptcy Act 1966 ("the Act") for review of a decision of a delegate of the Inspector-General in Bankruptcy made on the 29th April 2002 under Regulation 16.10, not to waive or remit the Official Trustee's fees in relation to Miss Lopez' bankruptcy
At the hearing Mrs M Goodman, who lives with and cares for Ms Lopez, spoke on her behalf and gave evidence. Miss Lopez also gave evidence, as did her parish priest, Father Brian Bailey of St Marks, Fitzroy. Mr S. Linden, a solicitor with the Australian Government Solicitor, appeared for the Inspector-General. Mr Chua, an Assistant Official Receiver, with the Insolvency and Trustee Service Australia ("ITSA") gave evidence. The Tribunal had before it the documents ("the T documents") lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975 ("the AAT Act") and also the exhibits tendered during the hearing.
BACKGROUND FACTSThe background facts are set out in paragraphs 1 to 9 of the respondent's Statement of Facts and Contentions which, omitting calculations, provide as follows:
1.The Applicant became bankrupt on 20 November 1990 at the petition of Sarid Nominees Pty Ltd and the Official Trustee in Bankruptcy ("the Trustee") became trustee of her bankrupt estate.
2.The Applicant disclosed in her Statement of Affairs [T5] that the cause of her bankruptcy was her involvement in a motor vehicle accident in 1981 which lead to her being unable to work.
3.The Applicant owns a one third interest in a house property situated at 135 George Street, Fitzroy ("the property"). The property is valued at $400,000.00 to $500,000.00 [T8 and T9] and the Applicant's one third interest is estimated to be worth $150,000.00.
4. The Applicant's treating doctor describes her as having multiple medical conditions including morbid obesity, cardiac problems, diabetes and needing a full time carer, a special bed and a lifting device.
5.By letter dated 2 August 1999 the Applicant's solicitors, Clayton Utz, requested details of the amount the Applicant had to repay in order to pay out the bankruptcy. By letter dated 10 August 1999 [T8] the Trustee informed the Applicant's solicitors that the amount required to pay out the bankruptcy, including statutory fees and charges, was $ 143,423.96 on the basis that the bankrupt had disclosed debts totalling $ 108,955.00.
6.In order to obtain an annulment of the bankruptcy under section 153A of the Bankruptcy Act 1966 ("the Act") a bankrupt must pay all the debts proved in the bankruptcy and the costs, charges and expenses in the administration of the bankruptcy, including the remuneration and expenses of the trustee. The payout figure referred to above was the amount required to be [sic] obtain an annulment under section 153A off [sic] the Act.
7.Subsequently, the Trustee received proofs of debt totalling $87,397.00, details of which are as follows:
Creditor Amount
Adriatic Furniture $4,420.00
Dr D Duffy $ 1,685.00
Ms E Goodman $80,000.00
Prof. K Bradley $760.00
Ronald V Tait $532.00
$87,397.00
8. The Applicant's carer, Ms Emolyn Goodman, withdrew her proof of debt thereby reducing the debts to a total amount of $7,397.00. On that basis the Trustee recalculated the fees payable under subregulation 16.07(3) of the Bankruptcy Regulations to be $5,910.66, the fees payable under subregulation 16.07(1) and Schedule 10 of the Bankruptcy Regulations to be $287.26 and costs of the administration to be $6,000.00 (giving a total payout figure of $19,594.92).
9.By letter dated 13 May 2002 Ms Goodman informed the Trustee that two of the remaining creditors had been satisfied (Adriatic Furniture and Ronald Tait). On 14 May 2002 the Trustee advised Ms Goodman that after the withdrawal of Adriatic Furniture and Ronald Tait as creditors in the estate there are now only two creditors, namely Dr Duffy and Professor Bradley, totalling $2,445.00. She was further advised that the recalculated payout amount was $13,837.73, calculated as follows:
. . .
10.In accordance with the above calculations the Trustee's fees now total $5,392.73.
By letter dated 19 March 2002 (T6), Mrs Goodman applied on behalf of Miss Lopez for a remission of fees under Regulation 16.10 which, so far as relevant provides:
16.10(1) Subject to subregulation (2), the Inspector-General may waive or remit the whole or part of any fee.
16.10(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.
The application made by Mrs Goodman on behalf of Miss Lopez was refused by letter dated 29 April 2002 (T3). The application to this Tribunal is made under Regulation 16.11 which provides as follows:
16.11. A person who made an application for the waiver or remission of a fee and who is aggrieved by a decision under subregulation 16.10(1) in respect of the application may apply to the Administrative Appeals Tribunal for review of the decision.
THE APPLICATION OF THE RELEVANT LEGISLATION
The fees and charges payable to the Official Trustee are set out in Regulation 16.07 and 16.08 and Schedule 10. Regulation 16.07(2) provides for a minimum fee of $265 in respect of Schedule 10 items. That, plus GST, is the amount claimed under Regulation 16.07(2).
Regulation 16.07(3) (3A) and (4) and 16.08 provide:
16.07(3) Where 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
(aa) performs work under Division 6 of Part IV of the Act; or
(b)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;
a fee is payable to the Official Trustee, subject to regulation 16.08, as follows:
(c) if the prescribed amount in respect of the estate or the debtor does not exceed $4,000 - a fee of $4,000 or the prescribed amount, whichever is the less;
(d) if the prescribed amount in respect of the estate or the debtor exceeds $4,000 but does not exceed $50,000 - a fee equal to the sum of $4,000 and an amount equal to 15 percent of the amount by which the prescribed amount exceeds $4,000;
(e) if the prescribed amount in respect of the estate or the debtor exceeds $50,000 - a fee equal to the sum of $10,900 and an amount equal to 10 percent of the amount by which the prescribed amount exceeds $50,000.
16.07(3A) A fee payable under subregulation (3) is payable:
(a) where paragraph (3)(aa) applies-out of the amount realised (within the meaning of that expression set out in subregulation (4) as modified by subregulations (5) and (6)) under Division 6 of Part IV of the Act; or
(b)in any other case-out of the estate.
16.07(4) For the purposes of subregulation (3), the prescribed amount in respect of an estate or a debtor is determined using the formula:
amount realised - (business costs + securities)
where:
"amount realised", subject to subregulations (5) and (6), means the total amount realised, or brought to credit, by the Official Trustee in the estate or in relation to the debtor, as the case may be;
"business costs" means the amount paid by the Official Trustee in carrying on the business of the bankrupt, deceased person or debtor;
"securities" means the amount paid to secured creditors in respect of their securities.
16.08. (1) For the purposes of calculating a fee payable under paragraph 16.07 (3) (c), (d) or (e), the applicable "prescribed amount" is not to exceed the total of:(a)the amount of the debts of the estate or debtor; and
(b) the costs of administration of the estate.
16.08(2) In subregulation (1):
"costs of administration" means the proper costs, charges and expenses of the administration, other than:(a) any realisation charge paid or payable by the Official Trustee under an Act; and
(b)any fees paid or payable to the Official Trustee under regulation 16.07 or to the Official Receiver under Subdivision B of this Division;
"debts" means the total of:
(a) the taxed costs of the petitioning creditor; and
(b) proved debts of the estate or debtor, including interest accrued before the date of bankruptcy; and
(c) interest accrued on and after that date on those debts if they are interest bearing debts
There was no discussion as to the construction of the Regulations. In the absence of any challenge, and bearing in mind the explanation at paragraph 7 of the ITSA letter (T3), I will treat the Official Trustee's approach as a correct application of Regulation 16.08. I have some doubt as to whether there can be any prescribed amount under Regulation 16.07(3), where there has been no realisation. In this matter the prescribed amount was taken by the Official Trustee to be $2445.00 (the debts said to be owing to Dr Duffy and Professor Bradley) plus $6000.00, being the costs of the administration of the estate as set out in paragraph 13 of Mr Chua's witness statement (R1), making a total of $8445.00. The major component in the costs of the estate was the payment of six annual insurance premiums for the house.
The Official Trustee claimed $4709.84 plus GST, as the amount of the fees payable. Mr Chua in paragraphs 11 and 12 of his statement (R1) explained the calculation of fees and the recalculated payout amount as follows:
11. The recalculated payout amount is calculated as follows:
$ $
Subregulation 16.07(2) Sch 10 Fee: $265.00 x 1.084 (GST) 287.26
Subregulation 16.08(1) Amount of debts in the estate 2,445.00
Costs of administration 6,000.00 8,445.00
Subregulation 16.07(3) Prescribed amount 8,732.26
Subregulation 16.07(3) - First $4,000 4,000.00- Second $4,732.26 @ 15% 709.84 4,709.84
GST on $4,709.84 - 8.4% 395.63
13,837.7312.In accordance with the above calculations the Trustee's fees now total $5,392.73.
CONSIDERATION OF THE MATTERS SPECIFIED IN REGULATION 16.10(2)
(a)would payment of the fee by Miss Lopez impose undue hardship?
Mrs Goodman's letter of 19 March 2002 (T6) seeking remission of fees stated in part (T6 pp 34-35):
Ms Lopez resides in her house at 135 George Street Fitzroy Melboune for over 20 years. I live with her as her carer.
Ms Lopez has a long history of a series of medical conditions that incapacitates her physically and since the bankruptcy her emotional and psychological condition has affected her considerably. I enclose a report by her treating doctor, Allan Bond, describing her medical conditions.
Ms Lopez is a single person in her late seventies who immigrated from Spain 39 years ago. She has no family with her, and her sole income is the aged pension. Her resources are very meager. Her greatest fear is the concern regarding the possible loss of her house that she worked very hard for many of her working years.
The house was purchased together with her married niece and husband after they arrived in Melbourne from Spain in 1972 sponsored by Ms Lopez. The only payment they made on the house was their share of the initial deposit. Soon after they returned to Spain leaving Ms Lopez to service the mortgage on the house. When they were notified about the bankruptcy by ITSA, they took a Supreme Court action to force the sale of the house. Fortunately for Ms Lopez, the action failed thanks to the intervention by her legal representatives, Clayton Utz, whose services are pro bono.
The fact is her niece and husband owes her a considerable debt during their three years stay in Australia. During that time Miss Lopez gave them not only financial support but assisted them in securing work under difficult circumstances as they were unable to speak English and were recently terminated from their job
Recently I have successfully negotiated settlement on Ms Lopez's behalf with her remaining creditors who were most understanding of her situation They demonstrated generosity by reducing amounts owed, and totally waived the debt. One creditor accepted payment of $1,200 instead of $3000, another creditor reduced the amount owed from $530 to $280; the third creditor was prepared to forgo the debt of $1,760
Ms Lopez is still in debt. She is in arrears of many thousands of dollars to the City of Yarra and is paying instalments of $200 a month in respect of rates owed on the house. In light of this agreement and the secured interest, which the City of Yarra holds on the property, they wrote to the Official Trustee indicating their intention not to lodge a proof of debt.
There remains the debt owed to the Official Trustee and the Registrar in Bankruptcy of many thousands of dollars which Ms Lopez simply does not have the resources to pay.The T documents also include a letter from Dr Bond dated 2 May 2002 (T6 p36) which stated:
This is to advise that Conchita Lopez has attended the undersigned for medical care since 1992.
Conchita is quite incapacitated and needs continued care and suffers from multiple medical problems including
Insulin dependent diabetes
Hypertension
Ischaemic Heart disease
P/H (past history) of Deep Vein thrombosis, pulmonary embolism & Inferior Vena Caval filter.
Cerebro Vascular accident
Morbid obesity
Conchita aged 76 yr has lived at her current home for over 20 yrs and any permanent move to an alternate home would be extremely disruptive and stressful for Conchita.
At the hearing Mrs Goodman also produced a letter dated 16 July 2002 from Dr Hum, an Assistant Geriatrician at St George's Health Service (A6). He wrote:
Miss Lopez is a seventy-seven year old lady who has a past history of:
1.Dementia.
2.Depression requiring inpatient admission 27 May 1991 to 20 June 1991 at St. Vincents Hospital
3.Insulin dependent diabetes mellitus.
4.Hypertension
5.Osteoarthritis of the knee.
6.Pulmonary embolism.
7.Obesity
8.Left Colles fracture 1998.
9.Motor car accident in 1978.
10.Second motor car accident in 1981.
Conchita has been known to St. Geroge's Health Service since January 1999. Since 1999 Conchita has been assessed by the Aged Car Assessment Service in addition to the Aged Psychiatry Assessment Service, had an inpatient assessment at St. George's Hospital and also attended the Regional Continence Clinic at St. George's Hospital in addition to booked respite care at Cambridge Nursing Home.
Conchita has significant cognitive and physical disabilities for which she requires full time care, which she receives from Molly Goodman. Her main disabilities are significant cognitive impairment. She was assessed by the Aged Psychiatry Team in June 2000 when she presented with a history of auditory and visual hallucinations. This was on a background of longstanding depression. At that stage her paranoid delusions were treated with a course of anti-depressants and psychotropic medication. She had a detailed neuropsychological assessment in May 2000 by the neuropsychologist at St. George's Hospital.
Neuropsychological assessment revealed strong, major problems with executive functions such as planning, new learning, problem solving. The conclusions at that stage were that her cognitive deficits were extensive and severe, such as to compromise Miss Lopez' ability to make reasoned decisions about her lifestyle or care needs and would also certainly prevent her from competently managing financial and legal decisions about her estate. The aetiology of her cognitive losses was thought to be mixed, including traumatic head injury from her motor vehicle accidents in the past, in addition to ischaemic processes.The Tribunal also received (A7) a letter from Rosemary Lade, an Occupational Therapist with St George's Health Service Aged Care Assessment Service. Ms Lade stated that Miss Lopez needed an electric hospital bed and hoist and would in the future need a wheelchair. The letter set out the costs she would need to pay in addition to any subsidy.
The evidence before me is that Miss Lopez does not have any funds to pay either the $6000 costs of administration, or the amount of the debts in the estate (if there are in fact any debts owed to the estates of Dr Duffy and Professor Bradley), or the Official Trustee's fees which are now calculated as $5392.73, and which might be somewhat less if the debts totalling $2445 were disregarded. The costs of the administration, calculated by Mr Chua at $6000, are not the subject of this application. Any application to remit those costs would have to be made under s 283 of the Act. Further, the fact that the bulk of the costs relate to insurance premiums paid on Miss Lopez' house would be relevant to deciding whether it would be appropriate to remit those costs.
There is no dispute about the fact that Miss Lopez is in a difficult financial position and has severe health problems. That was acknowledged in the Official Receiver's report to the Federal Court on Miss Lopez' application for an order of annulment of her bankruptcy (R6). The Official Receiver wrote at paragraphs 13 and 14:
13.Present Circumstances
The Bankrupt is 72 year-old, infirm and depends on an aged pension. She needs constant medical as well as personal attention. The Bankrupt is not known to have any relatives living in Australia.
14.Attitude of Official Trustee
The Bankrupt is a pensioner who suffers from poor health and needs constant medication. It would be traumatic for her if she had to vacate her present residence as she currently has no financial means to gain acceptance into a private nursing home. Getting a suitable residence for her would be difficult.
In respect of the Bankrupt's application to have her Sequestration Order set aside, the Official Trustee neither supports nor opposes it on the ground that it is not privy to the dealings between the Bankrupt and her Petitioning Creditor, Sarid Nominees Pty Ltd.
Further the respondent stated at paragraphs 14 and 15 of his Statement of Facts and Contentions:
14.The Applicant's case for hardship is based on her age, her medical conditions and her limited income from a pension.
15.The Respondent does not challenge the Applicant's evidence as to the Applicant's medical condition, nor does he dispute that the Applicant's [sic] requires the 24 hour assistance of a carer and specific medical equipment, in particular a hospital bed, lifting device and a wheel chair.
The respondent's submission on this issue was based on the three decisions so far decided by this Tribunal under Regulation 16.10. Mr Linden submitted:
22.In determining the question of "undue hardship" under Regulation 16.10 each case is unique and the above cases can provide no more than some guidance.
23.In the present case it is accepted that the Applicant is aged, infirm and on a pension. However, as the above cases demonstrate, these are not circumstances that are 'unusual' or 'exceptional' and it does not follow that payment of the statutory fees would result in 'undue hardship'.
24.On bankruptcy, a bankrupt's assets vest in the trustee. The trustee's duty, if possible, is to pay all creditors in full, including any statutory fees and charges. It is often the case that the assets are insufficient to pay creditors in full. After discharge from bankruptcy, most bankrupts are left with no assets, as the amount realised is rarely enough to pay all their debts in full.
25.In the Applicant's case, she has been able to continue to reside at the property because her creditors have not required the Trustee to realise its interest for their benefit. While there remains the possibility that the Trustee may be required to join in a sale of the property, such a possibility does not cause undue hardship in the context of bankruptcy.
26.The Applicant has managed to pay or enter into arrangements to pay a number of her creditors (in the wide sense, not limited to those in her bankruptcy), including the local council in respect of rates. The statutory fees and charges under the Act are no less important than any of those debts. The importance of the Trustee's fees is highlighted by the priority accorded to them under section 109 of the Act.
27.The Trustee has spent considerable time and incurred substantial costs in protecting its interest in the property, particularly in respect of insurance. Even if the Trustee's fees were waived, the Trustee's costs of $6,000.00 and the creditor's debts of $2,445.00 will need to be paid and costs of insurance and rates will keep accruing. Payment of the Trustee's fees of $5,392.73 in that context will not cause undue hardship.
The decisions referred to by Mr Linden were Re Faulkner and Inspector-General in Bankruptcy (AAT 12950, 3 June 1998), Re Ayoub and Insolvency and Trustee Service Australia (Inspector-General in Bankruptcy) [2002] AATA 465 and Re Peets and Inspector General In Bankruptcy [2002] AATA 486. Mr Linden submitted that the circumstances of Miss Lopez, and in particular, her poverty and ill-health, were not such as to indicate that payment of the fees by her would impose "undue hardship" on her.
As Miss Lopez has no money or income other than her pension, and is 77 years old and suffering some degree of dementia and depression and other medical conditions which substantially incapacitate her, there is no way of her paying the fees unless her home is sold. Mrs Goodman and Miss Lopez and Father Brian gave evidence, that she very much wants to remain in her home.
It is true, that many bankrupts do lose their home, but Miss Lopez has now been living under the cloud that she may lose her home, because of her bankruptcy, for almost 12 years. In that time her mental and physical states have deteriorated, and as Dr Bond wrote in his letter of 2 May 2001 (T docs p36):
Conchita aged 76 yr has lived at her current home for over 20 yrs and any permanent move to an alternate home would be extremely disruptive and stressful for Conchita.
Mrs Goodman gave evidence about Miss Lopez' anxiety at the thought of having to move from her home and about the facilities she uses in her neighbourhood. Father Brian said that when he has visited Miss Lopez, while she was spending two weeks in a nursing home to provide respite for Mrs Goodman, he has noticed that she has been unhappy out of her home. He also spoke of the emotional support he and the congregation provide to Miss Lopez. I find that Miss Lopez relies on her neighbours for friendship and that her support systems such as church, day care, hospital and doctor are all in the neighbourhood of her home. I find that for Miss Lopez to have her home sold, particularly as she is as an infirm, dependent 77 year old, would cause her hardship.
I also find that the thought of her home being sold causes Miss Lopez anxiety. This is not surprising. The Carlton Fitzroy Financial Counselling Services looked into her difficulties during 1994. On 28 September 1994 a financial counsellor there wrote her a letter which was tendered in evidence (A5). It read in part:
This service has established that the Insolvency and Trustee Service are resolved to sell your house unless they receive the money that is owing to all your creditors plus legal costs and interest. Your instructions in this regard are that you do not have the capacity to raise the money owing.
. . .
Current situation
The Bankruptcy trustee has decided not to arrange for your arrest for failing to vacate your house on 19 September, until she gets further court order. When that court order is obtained, you will be arrested unless you have satisfied all the debts which the trustee has proven against you, or unless you have vacated 135 George Street, Fitzroy. (emphasis added)Mr Chua said that it is now understood by ITSA that it would be inappropriate to have Miss Lopez arrested or to sell her house simply to raise the money to pay the Official Trustee's charges. I accept his evidence, but I also note that by letter from ITSA dated 11 August 1999 (A9), Miss Lopez was advised that ITSA was prepared to join her two co-proprietors in the sale of the house. ITSA in that letter asked Miss Lopez to make enquiries about alternative accommodation.
The Tribunal in Re Faulkner and Re Ayoub seemed to equate "undue hardship" with "special circumstances". It applied the test of special circumstances, as explained in Re Beadle and Director-General of Social Security (1984) 6 ALD 1 at p4 and approved by the Federal Court in Beade v Director-General of Social Security (1985) 7 ALD 670 at p675. In Re Faulkner the Tribunal concluded at paragraph 32:
I am not reasonably satisfied that Mr Faulkner's hardship which he suffers can be characterised as more "unusual, uncommon or exceptional" than that of any other person who has been through a marriage breakdown and bankruptcy, and is living on a pension. I am not aware of any error committed by the Inspector-General which would indicate that the discretion should be exercised. Mr Faulkner has not told me about any further illness, injury or tragedy in his life which I have not already considered. Accordingly, although I acknowledge he has experienced suffering, I do not find that he has suffered "undue hardship" within the terms of regulation 16.10 of the Bankruptcy Regulations.
I am not confident that the term "undue hardship" should be read as so similar to the term "special circumstances". It seems to me appropriate to look at the meaning of the word "undue" and at the hardship which would be imposed on Miss Lopez by the payment of the fees, and then to consider whether that would be "undue hardship". The New Shorter Oxford English Dictionary (1993) gives the following meanings of the word "undue":
1.Not owing or payable
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
The Macquarie Dictionary (2nd edition) (1992) gives the following meanings:
1.unwarranted; excessive; too great
2.not proper, fitting, or right; unjustified
3.not yet owing or payable
Meanings 2 and 3 of the New Shorter Oxford Dictionary are similar to meanings 2 and 1 respectively in the Macquarie Dictionary. They raise the questions whether the hardship imposed on Miss Lopez by payment of the fees would be inappropriate or unjustifiable or unwarranted or excessive or disproportionate. The evidence is that the only way Miss Lopez could pay the fee is by selling her home or having it sold by the Official Trustee. She will never again have the capacity to work or earn income. Mr Chua agreed that it would be quite inappropriate for the Official Trustee or ITSA to sell the house to derive its fee and then pay a very small dividend to two (alleged) creditors. He said at transcript pp41-42:
That would make us look like joke in the eyes of the community. Therefore we won't do it. So that is why I am personally very disappointed to hear that the impression that came across to the Tribunal is that we are forcing the issue.
Even accepting Mr Chua's evidence that there is now no intention to sell Miss Lopez' house, so long as the fees remain outstanding they are preventing Miss Lopez obtaining an annulment of her bankruptcy. Further, so long as her estate is vested in the Official Trustee she faces the prospect of the issue of the sale of the home being reactivated, as it was as recently as August 1999. In addition Mr Chua made it clear that he could not explain the actions of the officer who handled the matter before it came to him in 1994. Similarly it is not possible to know what would happen if another officer took over responsibility from Mr Chua.
Regulation 16.10(2) directs attention to the effect of the payment of the fees by the person. It does not ask whether they are likely to be demanded by the Official Trustee. The question is, would payment of the fee impose undue hardship on Miss Lopez? As the only way the fees could be paid by Miss Lopez would be by sale of her house, it would, for the reasons set out above, impose hardship. Would that be "undue hardship"?
There are matters which mean that the sale of Miss Lopez' home would impose very significant hardship on her. They are:
(i)Miss Lopez' age and health problems;
(ii)her dementia and confused state which means that she would find any move to an alternate home "extremely disruptive and stressful";
(iii)her dependence on support systems in the neighbourhood of her home;
(iv)the fact that she has lived in that home for approximately 30 years;
(v)the fact that no alternative home is available to Miss Lopez.
There are further matters which are relevant in deciding whether that hardship is inappropriate, unjustified, unwarranted or excessive. They are:
(i)the nature of the debts regarded by the Official Trustee as remaining outstanding;
(ii)the time since Miss Lopez was made bankrupt and was discharged from bankruptcy and since administration of the estate was finalised.
the nature of the debts
A significant matter raised by Mrs Goodman in her evidence was a real doubt as to whether the only two creditors regarded by the Official Trustee as having outstanding debts, Dr Duffy and Professor Bradley, should have been allowed to prove in the bankruptcy.
By letter dated 14 May 2002 (Attachment AC4 to R1) Mr Chua advised Mrs Goodman:
[T]here are now only two creditors namely, Dr Duffy and Professor Bradley totalling $2445.00.
Thereworked payout amount is now $13,837.73 . . .
Mrs Goodman explained that she had negotiated with all the other creditors on behalf of Miss Lopez but had not been able to contact or negotiate with Dr Duffy and Professor Bradley because they are both dead.
Further, Mrs Goodman said that as both Dr Duffy and Professor Bradley were treating doctors she believed they had been paid in full prior to the bankruptcy by the Transport Accident Commission ("TAC"). She produced a letter from Carroll & Dillon, Solicitors dated 29 July 1986 (A4). That letter related to a payment into court in Miss Lopez' action in respect of injuries sustained in a motor accident. It stated that if Miss Lopez accepted a payment into Court, she would be entitled to retain the benefit of payments made to her or on her behalf, and set out details of such payments, including the payment of $376.80 to Professor Bradley, and also a payment of $1684.50 to Dr Duffy. That is the precise amount of Dr Duffy's proof of debt. The letter also shows the sum of $5,786.90 as having been paid to Dr Wahr. He was at one stage listed as a creditor, but he advised his account had been paid in full by the TAC.
In further support of her belief that the fees of Dr Duffy and Professor Bradley had been fully paid, Mrs Goodman produced a letter from Dr Duffy dated 6 October 1992, (A2). He wrote that he had no records of any outstanding unpaid accounts incurred by Miss Lopez in respect of the years 1983 and 1984 and "consequently I make no claim."
The letter from Dr Duffy produced by Mrs Goodman (A2) had an annotation on it stating that Miss Lopez had paid Professor Bradley's account. Miss Lopez said in her evidence that she had paid Professor Bradley herself. That could explain the discrepancy in amounts between Professor Bradley's proof of debt of $759.60 and the sum of $376.80 which Carroll & Dillon stated the TAC had paid to Professor Bradley.
There was no evidence as to when Miss Lopez forwarded Dr Duffy's letter of 6 October 1992 to the Official Trustee, however Mr Chua seemed to accept that it had come to the Official Receiver in 1992. There was evidence that when she was healthier, Miss Lopez had attended at the office of the Official Trustee on a number of occasions. I find it probable that she would have brought this letter to the attention of somebody working in the office of the Official Trustee, shortly after it was given to her.
The evidence is that the accounts of Dr Duffy and Professor Bradley, like that of Dr Wahr, arose from treatment of injuries sustained in a motor vehicle accident and thus would have been payable by the TAC. That is confirmed by the letters from Dr Duffy saying that he had no unpaid accounts and from Carroll & Dillon saying that the fees of Dr Wahr, Dr Duffy and Professor Bradley had been paid.
When I asked Mr Chua to comment on the possibility that there were no debts owing to Dr Duffy and Professor Bradley, even at the time of the bankruptcy, he relied on the letter and a proof of debt lodged on behalf of Dr Duffy (R2), and a proof of debt signed by Professor Bradley (R3). He also referred to the list of unsecured creditors forming part of the Statement of Affairs (T5 p25) lodged by Miss Lopez on 13 December 1990.
Mrs Goodman said that she wrote that list for Miss Lopez, but she does not recall where she got those figures. The list sets out the amounts owing as follows:
No Name of Creditor Year Incurred Nature of Debt Amount Owed
C1 Mrs E Goodman 1976 Money Goods Services $80,000
C2 Fitzroy Town Hall 1982 Rates $14,010
C3 Dr. G. Wahr 1981 Medical $ 7,000
C4 Dr. D. Duffy 1981 Medical $ 969
C5 Prof. K. Bradley 1981 Medical $ 2,202
C6 Adriatic Furniture 1986 Furniture $ 3,000
C7 Casa Iberica 1984 Groceries $ 1,776
Mrs Goodman could not remember where she obtained the information she set out in the list of unsecured creditors in the Statement of Affairs signed by Miss Lopez (T5). Miss Lopez could not explain it either. Nor could Mr Chua shed any light on whether it might have been derived from something sent to Miss Lopez in the early stages of her bankruptcy proceeding. Dr Wahr never lodged a proof of debt. He advised that his fees had been paid by the TAC.
The proof of debt lodged by Dr Duffy (R2) claimed $1684.50 and is dated 20 September 1995. It is written in a very quavering hand. Mr Chua also produced a typewritten but unsigned letter dated 18 July 1994 purporting to be from Dr Duffy claiming the same amount.
The typewritten proof of debt lodged by Professor Bradley (R3) was signed, again in an unsteady hand. It claimed $759.60, and was dated 29 January 1991. Mrs Goodman lodged a copy of a grant of probate in respect of the estate of Professor Bradley, showing that he had died on 8 December 1995.
Mrs Goodman also gave evidence (trans. pp10-11) that when Clayton Utz had written to the executors of the estates of Dr Duffy and Professor Bradley about Miss Lopez' bankruptcy, they had received no reply from either estate.
In view of the fact that Mr Chua had stated in paragraph 10 of his statement (R1) that the only two creditors remaining were Dr Duffy and Professor Bradley, I found Mrs Goodman's evidence surprising. Mr Chua did not challenge her evidence that both doctors were dead. Nor did he claim to have investigated whether their accounts had been paid in full by the TAC, after he received a copy of the letter from Carroll & Dillon.
A copy of the letter from Carroll & Dillon, Solicitors dated 29 July 1986 (A4) was sent to Mr Chua by Clayton Utz, Solicitors, acting on behalf of Miss Lopez, on 6 April 2001 (R5). They wrote:
We act for Ms Conchita Lopez. We refer to the above matter and enclose for your file a letter from Carroll & Dillon, Barristers & Solicitors to Messrs Sackville Wilks & Co, Solicitors dated 29 July 1986.
This letter was recently forwarded to us by Ms Lopez's carer. We regard it as evidence which should be taken into account in relation to the proof of debts allegedly owed by our client to Dr Bradley and Dr Duffy.Mr Chua said he made no enquiries of Carroll & Dillon following receipt of that letter. I indicated my concern about that, and asked whether there had been any contact with the executors of the estates of Dr Duffy and Professor Bradley, or any consideration given as to whether those estates would even want payment of the claimed amounts if they had been fully wound up. Mr Chua said there had been no contact with the estates.
Mr Chua explained that once proofs of debt were lodged they were accepted as accurate unless there was "a hue and cry" (trans. p37):
It is the way ITSA operates. Considering it is assisting manpower, the volume of work and everything else. So we are merely the bankruptcy trustee of a person who has become a bankrupt. And we are relying on the bankrupt and his or her creditors to feed us with information. In the first place when Conchita Lopez became a bankrupt, she indicated in her own Statement of affairs that she owed these seven creditors, including Dr Duffy and Dr Bradley. . . .
And also possibly the handwritten letters by Duffy or Bradley later on and also the two proofs of that. So these documents flows in in the midst of we, being officers of ITSA, doing other work as well. And therefore there is no real significance as to why we have to instigate additional inquiries because there had been contradiction. So the practice of the office is that if there is no hue and cry we would accept the latest version of a person's claim. Like, for example, in this instance a letter dated some time in '86 might have suggested that Dr Duffy and Dr Bradley had been paid off. We don't know that for a fact. But then in '90 the bankrupt herself say that they had not been paid off. Then of course we have to accept what she say in her Statement of Affairs. In '92 a letter might have come to us from – I can't remember if it is Duffy or Bradley - - -
Duffy, Duffy?--- - - - from Duffy, saying that he had no claim. And then in '94 he say that he had a claim. So if you were to multiply this kind of contradiction in our office scenario by many folds, our time would be just chasing all these contradictions. So we, as a matter of expedience, we don't go out of our way to check it, unless there are special reasons to do so. That is my explanation.
It is significant that Carroll & Dillon in their letter of 29 July 1986 (A4) stated that Dr Duffy had been paid the precise amount claimed in his proof of debt. It is also significant that after Carroll & Dillon wrote that letter, Dr Duffy gave Miss Lopez a letter stating that he had no record of unpaid medical bills relating to Miss Lopez. It is probable that the amount specified by Carroll & Dillon as having been paid to Professor Bradley was the balance beyond what was paid direct to him by Miss Lopez.
On the material before me it seems probable that the only two debts which the Official Trustee regards as remaining outstanding should never have been allowed to prove in the bankrupt estate of Miss Lopez.
I find it to be quite inappropriate, unjustified, unwarranted and excessive that Miss Lopez should be facing any prospect of her home being sold to satisfy the fees of the Official Trustee, when the probability is that the only debts the Official Trustee regards as remaining outstanding should never have been accepted as debts provable in the bankruptcy.
the time since Miss Lopez was made bankrupt and discharged from bankruptcy and since the Official Trustee appears to have been released from being trustee of her estate
Miss Lopez has now lived under the cloud of having her estate administered by the Official Trustee for 12 years. The Official Trustee is still administering Miss Lopez' estate and holding the title to her house in order to pay outstanding creditors, although it is now almost nine years since her bankruptcy was discharged on 21 December 1993. The general community understanding of bankruptcy is that discharge of bankruptcy discharges a debtor from debts provable in the bankruptcy which have not been paid. That is also what is specified in s 153(1) and (2) of the Act. They provide:
SECTION 153 EFFECT OF DISCHARGE
153(1) [Effect] Subject to this section, where a bankrupt is discharged from a bankruptcy, the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy, whether or not, in the case of a secured debt, the secured creditor has surrendered his or her security for the benefit of creditors generally.
153(2) [Exceptions from release] The discharge of a bankrupt from a bankruptcy does not:(a)release the bankrupt from:
(i)a debt on a recognizance; or
(ii)a debt with which the bankrupt is chargeable at the suit of the sheriff or other public officer on a bail bond entered into for the appearance of a person prosecuted for an offence against a law of the Commonwealth or of a State or Territory of the Commonwealth;
(aa)release the bankrupt from liability to pay an amount to the trustee under subsection 139ZG(1);
(b)release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust to which he or she was a party or a debt of which he or she has obtained forbearance by fraud;
(c)subject to any order of the Court made under subsection (2A), release the bankrupt from any liability under a maintenance agreement or maintenance order; or
(d)release the bankrupt from any liability under a pecuniary penalty order or interstate pecuniary penalty order.
The debts owed by Miss Lopez were not of the types specified in s 153(2) of the Act. When I asked Mr Linden how it came about that the Official Trustee still held the property of Miss Lopez, he told me that the Official Trustee holds a bankrupt's property for 20 years or until annulment. He did not refer me to any section of the Act but may have been making reference to s 127(1) which provides:
127 LIMITATION OF TIME FOR MAKING CLAIMS BY TRUSTEE ETC.
127(1) [Claim after 20 years] After the expiration of 20 years from the date on which a person became a bankrupt, a claim shall not be made by the trustee in the bankruptcy to any property of the bankrupt, and that property shall, subject to the rights, if any, of a person other than the trustee in respect of the property, be deemed to be vested in the bankrupt, or a person claiming through or under him, as the case may be.
It is not clear from s 127(1) in what circumstances the Official Trustee would still be holding a bankrupt's property 17 years after automatic discharge. It may be that s 127(1) refers to situations where there was no automatic discharge or where, as in Re Faulkner, the debts were preserved under s 153(2), or where the creditor was secured and therefore s 153(3) was applicable.
Section 127(1) is also difficult to reconcile with s 184A of the Act. Document T4 is an extract from the National Personal Insolvency Index. It records the finalisation of the administration of the estate of Miss Lopez on 21 December 1993. That index is referred to in Regulation 8.14(1) and (2) which provides:
8.14. (1) A registered trustee must, within 7 days of finalising the administration of an estate, give notice in writing of the finalisation to the Official Receiver.
Penalty: 1 penalty unit
[NOTE: * * * * *]
(2) The Official Receiver must promptly enter on the Index the fact that the administration of an estate has been finalised, where:
(a) the Official Receiver receives notice under subregulation (1);
or
(b) the estate was administered by the Official Trustee.
Section 184A(2) provides:
184A(2) [Release after 7 years] The Official Trustee is released from being trustee of the estate of a bankrupt at the end of 7 years from the date on which the Official Receiver entered in the National Personal Insolvency Index the fact that the administration of the estate was finalised.
During the hearing, I expressed my surprise that the Official Trustee was still administering Miss Lopez' estate nine years after the automatic discharge of her bankruptcy. I was not then aware of s 184A(2) of the Act. I decided not to seek further submissions on that provision because of Miss Lopez' age and infirmity. She clearly found the hearing a trial, and because of her diabetes was desperate to go home before it concluded at 1.24pm. I offered an adjournment for lunch but was asked to proceed so the hearing could finish as soon as possible. The Official Trustee must be aware of s 184A(2) of the Act. I do not know why it was not referred to in the respondent's submissions. Section 184A(2) appears to add a further relevant factor, but even if for some reason it is not applicable in this matter, the nine years since discharge from bankruptcy are still a relevant factor in considering the issue of undue hardship.
The respondent's Statement of Facts and Contentions at paragraph 6 referred to s 153A of the Act as providing that a bankrupt must pay all debts provable in the bankruptcy in order to obtain an annulment. That section does not specifically deal with the survival of debts after discharge and after the Official Trustee has been released from being trustee of the estate of a bankrupt.
Section 152 of the Act does indicate that a trustee may still have duties to perform after discharge, in the realisation of a bankrupt's property vested in him or her, but it does not explain in what circumstances that situation would arise. Section 153(2) sets out certain circumstances when s 152 would apply, but none of those apply to Miss Lopez.
It is now almost 12 years since Miss Lopez was made bankrupt, almost nine years after her bankruptcy was discharged and the administration of the estate was finalised, and it would appear to also be two years after the Official Trustee was released (by s 184A(2) of the Act) from being trustee of the estate of Miss Lopez. I find that it is inappropriate and thus constitutes "undue hardship" that Miss Lopez should still be facing the possible sale of her home to pay the Official Trustee's fees.
CONCLUSION AS TO UNDUE HARDSHIPDuring the hearing I considered whether it was relevant that even if the fees of $5392.73 were waived, Miss Lopez would still be unable to repay the costs incurred by the Official Trustee, which have been specified as $6000, and thus would have the possible sale of her home hanging over her head in any event. Mrs Goodman, whose concern for Miss Lopez has been demonstrated by the fact she has moved into Miss Lopez' home to look after her as a full-time carer, and by her efforts to negotiate a settlement of the claims of all the living creditors on Miss Lopez' behalf, said that she was prepared to assist with payment of that amount if it would mean that Miss Lopez would be able to put her mind at rest about the possible future sale of her home. Thus it is the payment of the Official Trustee's fees which would impose undue hardship on Miss Lopez.
I find that the payment of the fees of the Official Trustee would impose "undue hardship" on Miss Lopez.
(b) are there other exceptional circumstances which make it proper and reasonable that the Official Trustee's fees be waived?The matters which may constitute other exceptional circumstances in this matter are:
(i)the lack of any realisation; and
(ii)the approach adopted by the Official Trustee.
the lack of any realisation
The Official Trustee is claiming a fee, although there has been no realisation. The exceptional nature of that situation was explained by Mr Chua when he said, in response to a question from the Tribunal, at transcript p38:
No we don't really charge anybody for our fee. Our fee is derived only on realisation. So the government, being ITSA, may be spending thousands upon thousands of dollars and if that particular estate has got no realisation, meaning no money coming into the trust account, the government would have [to] foot the bill. So we are not practising like private trustee, you see.
the approach adopted by the Official Trustee
I found it surprising that the attitude of the Official Trustee, as quoted by Mr Chua, should be that proofs of debt are not carefully investigated, even when a discrepancy is raised in correspondence with the Official Trustee. I consider that it should be an exceptional circumstance that the Official Trustee would decide not to investigate the discrepancy between a letter from a doctor dated 6 October 1992, stating that no accounts were outstanding relating to his treatment of the bankrupt in 1983 and 1984, and a subsequent proof of debt lodged by the same doctor. Similarly I hope it would be an exceptional circumstance that not even a telephone call was made to investigate the situation when the Official Trustee received a copy of the letter from Carroll & Dillon Solicitors dated 29 July 1986, showing that medical fees had been paid by the TAC, to doctors who had lodged proofs of debt, and that in respect of one proof of debt the amount stated to have been paid, was precisely the same amount as specified in the proof of debt.
Mr Chua agreed that the Official Trustee has a duty to a person who has been made bankrupt and who is liable to pay his fees, to take due care to ensure that only debts which are properly owing by the bankrupt will be admitted as provable debts. The evidence in this matter raises a doubt as to whether there was compliance with that duty.
Although I considered that the circumstances set out above were probably exceptional, it was Mr Chua's evidence that ITSA did not regard itself as having the time or manpower to conduct such investigations. He said that the Official Trustee simply relied on proofs of debt.
On that evidence I cannot find that there are other exceptional circumstances. The way this matter was handled within ITSA, although surprising to me, may be standard procedure, and not exceptional. The only exceptional circumstance is that there was no realisation. I am not convinced that that circumstance makes it proper and reasonable for the fee to be remitted.
CONCLUSIONI am reasonably satisfied that the fee of the Official Trustee should be wholly waived or remitted on the ground that payment of the fee by Miss Lopez would impose undue hardship on her.
The decision under review will be set aside. In substitution I will decide that the whole of the fee of the Official Trustee be waived.
I certify that the 67 preceding paragraphs are a true copy of the reasons for the decision herein of Mrs Joan Dwyer, Senior Member
Signed: Grace Carney
Personal AssistantDate/s of Hearing 22 October 2002
Date of Decision 22 November 2002
Counsel for the Applicant Nil
Solicitor for the Applicant Nil - Mrs Goodman, Carer
Counsel for the Respondent Nil
Solicitor for the Respondent Stephen Linden, Australian Government Solicitor
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