McTaggart and Inspector General in Bankruptcy
[2005] AATA 443
•18 May 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 443
ADMINISTRATIVE APPEALS TRIBUNAL Nº V2004/496
GENERAL ADMINISTRATIVE DIVISION
Re: ROBYN JOY McTAGGART
Applicant
And: INSPECTOR GENERAL
IN BANKRUPTCY
Respondent
DECISION
Tribunal: Mr B.H. Pascoe, Senior Member
Date: 18 May 2005
Place: Melbourne
Decision:The Tribunal sets aside the decision under review and in its place cancels the objection to the discharge of the applicant from bankruptcy.
The Tribunal certifies that the proceedings have ended in a manner favourable to the applicant.
(sgd) B.H. Pascoe
Senior Member
BANKRUPTCY ‑ objection to discharge – failure to disclose a liability – failure to disclose income – whether intentional – whether amounts were income
Bankruptcy Act 1966
Wharton and Official Receiver in Bankruptcy (2001) 107 FCR 28
REASONS FOR DECISION
18 May 2005 Mr B.H. Pascoe, Senior Member
This is an application to review two decisions of the Inspector General in Bankruptcy (the respondent) both of which were dated 23 March 2004. The first of these decisions was to uphold a previous objection by the applicant’s trustee in bankruptcy (the trustee) to discharge from bankruptcy. The second decision confirmed the decision of the trustee in his assessment of compulsory contribution for the contribution assessment periods (“CAP”) of the year to 20 May 2003 and the year to 20 May 2004.
At the hearing the applicant, Mrs R. McTaggart was represented by Mr V. Ryan, a solicitor. The respondent was represented by Mr S. Linden, a solicitor with the Australian Government Solicitor. Evidence was given by Mrs McTaggart, her husband, Mr T. McTaggart, and Ms A. Kokkinis, a manager employed by the trustee.
Mrs McTaggart became bankrupt on 21 May 2002 and Mr P. Pattison was appointed trustee of her estate. By notice dated 19 December 2003, the trustee gave notice of objection to discharge pursuant to s 149B of the Bankruptcy Act 1966 (“the Act”). The objection was on two grounds:
(a)the bankrupt intentionally failed to disclose to the trustee a liability of the bankrupt that existed at the date of the bankruptcy – s 149D(1)(ha) of the Act; and
(b)the bankrupt failed to disclose any particulars of income as expected income as required by a provision of the Act referred to in s 6A(1) or by s 139U ‑ s 149D(1)(e) of the Act.
The grounds of this objection were affirmed by the respondent in the decision under review.
The grounds of objection related to the purchase of a Toyota Soarer motor vehicle (“the Soarer”) in the name of Robyn Hughes on 19 January 2001 and a loan agreement in the same name with Capital Finance which provided finance for the purchase. Monthly payments of $733.75 in respect to the loan were made by Andersons, a firm of accountants. Neither the existence of the loan or the fact that repayments were being made by Andersons was disclosed in the Statement of Affairs or Annual Statements of Income by Mrs McTaggart. It was clear that Hughes was the maiden name of Mrs McTaggart and the name she had continued to use professionally as a teacher and in other capacities.
The evidence of Mr and Mrs McTaggart was that he had been a partner in the accounting firm, Andersons, until his bankruptcy in December 2001. He said that in January 2001, the firm and its associated companies needed an office vehicle for use of staff. It was said that both Mr McTaggart and his partner, Mr M. Murphy, had experienced some financial difficulties and a poor credit record. As a consequence, it was arranged for the Soarer to be purchased in the name of Mrs McTaggart with the attendant loan. It is a matter of conjecture of whether her maiden name was used deliberately to make the connection with Mr McTaggart less obvious. Mrs McTaggart said that she recalled attending the car dealer’s premises at the request of her husband to sign various papers but, at the time believed that she was acting in some guarantor capacity.
It was not in dispute that the documents relating to the purchase of the Soarer and the relevant loan showed her as the purchaser and the borrower. Neither was it in dispute that Andersons made the monthly repayments on the loan until some time in 2003. Mr McTaggart said that at that time, the firm decided that it needed a new vehicle. Mr Murphy, the then sole proprietor, determined that there was a “negative equity” in the vehicle and ceased making further payments. In November 2003, Capital Finance commenced demands on Mrs McTaggart for the unpaid balance of the loan after arrangements had been made for the return of the Soarer. Mr McTaggart said that he then informed Capital Finance that Mrs McTaggart was bankrupt and provided the name and contact details of her trustee. It was the subsequent contact by Capital Finance which triggered the objection to discharge by the trustee.
The evidence of Mrs McTaggart was that the Soarer had been regarded at all times as being Andersons’ vehicle. She had driven it on one or two occasions when she had borrowed it while her own vehicle was temporarily unavailable. Mr McTaggart did not recall that she had ever driven the Soarer. Mrs McTaggart was very firm in her evidence that she had been unaware that the Soarer was registered in her name and that she was the legal borrower of the finance. She said that she became aware of it only when contacted by the trustee. Mr McTaggart said that he had completed the Statement of Affairs and the Annual Statement of Income on behalf of his wife and had overlooked the legal arrangements made in January 2001.
I accept the evidence of both Mr and Mrs McTaggart that there was no intentional failure to disclose the liability in relation to Capital Finance. I accept that Mrs McTaggart was never aware of any personal liability until, at least, November 2003. While it might be properly said that Mr McTaggart as an accountant and a then partner of Andersons, should have been aware of the actual legal relationships, I am prepared to accept that, for nearly two years he had regarded the Soarer and the associated finance as belonging to the firm and not his wife. Consequently, I find that Mrs McTaggart did not fail s149D(1)(ha) of the Act, the ground relied upon by the trustee and the respondent.
The question of s149D(1)(c) of the Act is somewhat more difficult. Income is defined in s139L of the Act. Sub‑paragraph (a)(v) provides that income includes:
…
(a)(v) the value of a benefit that:
(A)is provided in any circumstances by any person (the provider) to the bankrupt; and
(B)is a benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 as in force at the beginning of 1 July 1992 (other than a benefit that would be an exempt benefit for the purposes of that Act if the provider were the employer of the bankrupt as an employee and the provider had provided the benefit in respect of the employment of the bankrupt);
being that value as worked out in accordance with the provisions of that Act but subject to any modifications of any provisions of that Act made by the regulations under this Act...
Section 20 of the Fringe Benefits Tax Assessment Act 1986 (“the FBT Act”) provides:
20 Where a person (in this section referred to as the provider):
(a)makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or
(b)reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient;
the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.
It was submitted by the respondent that the payments to Capital Finance by Andersons satisfied this definition of income and such income had not been disclosed.
It is noted that for an amount to be income it has to be a “benefit” to the bankrupt and “in respect of expenditure incurred by” the bankrupt. Whilst not specifically argued by Mr Ryan, the evidence of Mr and Mrs McTaggart was that the entering into the finance contract with Capital Finance by Mrs McTaggart was on behalf of and for the benefit of the accounting firm Andersons, in which Mr McTaggart was then a partner. It could be said from this evidence that the vehicle was purchased for the use of that firm with an actual or implied indemnity for the amounts due to Capital Finance. I am satisfied that Mrs McTaggart had no personal use of the vehicle. In these circumstances I am unable to see that she received any benefit of value provided by the monthly payments made by Andersons. It could be considered that neither were such payments “in respect of expenditure incurred” by her. Whilst her signing of the finance agreement in her name made her legally liable for the payments, she had a right of indemnity from Andersons. Consequently, I am of the view that the payments made by Andersons did not represent income of Mrs McTaggart either in the general understanding of the ordinary meaning of income or the definition of income in s139L of the Act. As a result there was no failure to disclose income.
Given the history of this matter and the evidence of financial difficulties being incurred by Mr McTaggart and his partner at Andersons in January 2001, I am satisfied that, even if I am incorrect in finding that the grounds of the objection relied upon by the trustee and respondent were not made out, the bankrupt has established that she had a reasonable excuse for any conduct or failure and the grounds do not justify the making of the objection. Consequently, I am satisfied that the objection should be cancelled pursuant to s149N of the Act.
It should be said that I have some concern in relation to this matter and the objection to discharge by the trustee. It is difficult to discern the reasons directed to achievement of a purpose of the law of bankruptcy in keeping Mrs McTaggart in bankruptcy for a further five years. As said by Weinberg J in Wharton v Official Receiver in Bankruptcy (2001) 107 FCR 28 at 41:
…Section 149D(1)(d) must be construed in the light of the requirement in s 149B(2)(b) that the trustee must believe that the filing of a notice of objection is the only way to induce the bankrupt to discharge his duties under the Act. It is plainly a course of last resort.
It follows from the foregoing that the decision under review should be set aside and the objection cancelled.
I certify that the thirteen [13] preceding paragraphs are a true copy of the reasons for the decision herein of
Mr B.H. Pascoe, Senior Member
(sgd) Olympia Sarrinikolaou
Clerk
Date of Hearing: 18 April 2005
Date of Decision: 18 May 2005
Solicitor for the applicant: Mr V. Ryan, Vincent Ryan SolicitorSolicitor for the respondent: Mr S. Linden, Australian Government Solicitor
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