Milsom and Official Receiver in Bankruptcy
[2004] AATA 275
•16 March 2004
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2004] AATA 275
ADMINISTRATIVE APPEALS TRIBUNAL Nº V2003/1074
GENERAL ADMINISTRATIVE DIVISION
Re: WENDY ALICE MILSOM
Applicant
And: OFFICIAL RECEIVER IN
BANKRUPTCY
Respondent
DECISION
Tribunal: Mr B.H. Pascoe, Senior Member
Date: 16 March 2004
Place: Melbourne
Decision:The Tribunal sets aside the decision of the respondent under review and, in substitution therefor, decides that, for the purposes of s 139S of the Bankruptcy Act 1966 in relation to the applicant's contribution assessment period commencing on 2 May 2003, the actual income threshold amount that was applicable to the applicant when the assessment was made is taken to have been increased to an amount equal to $1591 per fortnight from 2 May 2003 and $1650 per fortnight from 1 January 2004.
(sgd) Mr B.H. Pascoe
Senior Member
BANKRUPTCY - contribution from income - request for determination on grounds of hardship - suffers from illness or disability - required to pay cost of accommodation - person not contributing to cost of maintaining household - discretionary expenditure
Bankruptcy Act 1966 s139W
Re Pearce and Official Receiver in Bankruptcy (AAT 9778, 11 October 1994)
REASONS FOR DECISION
Mr B.H. Pascoe, Senior Member
This is an application to review a decision of the respondent rejecting an application to review an assessment of a contribution that the applicant is liable to pay to her trustee in bankruptcy pursuant to s 139P of the Bankruptcy Act 1966 (the Act).
At the hearing, the applicant, Ms W. Milsom, was represented by Mr W. Stark of counsel and the respondent was represented by Mr M. Lhuede, solicitor with Gadens. Evidence was given by Ms Milsom; her two sons, Daniel and Tim Skelton; her partner, Mr G. Tatnell; Ms Milsom's financial counsellor, Ms J. Lawton, and a solicitor employed by the respondent's instructing solicitors, Ms C. Gurvich. In addition to the documents provided by the respondent pursuant to s 37 of the Administrative Appeals Tribunal Act1975 (T1‑T5), statements by the witnesses and other documentation were tendered by the parties (Exhibits A1‑A4, R1‑R2).
Ms Milsom became bankrupt on 2 May 2003. The primary cause of the bankruptcy was her inability to meet the liabilities arising from guarantees provided by her in relation to a failed business venture by her partner. On 30 May 2003, the trustee made an assessment of her liability under s 139W of the Act to contribute the sum of $3343.75 to her bankrupt estate from her income. This assessment covered the contribution assessment period from 2 May 2003 to 1 May 2004. By letter of 9 July 2003, Ms Milsom applied to the respondent for a review of the trustee's assessment on the grounds that she would suffer hardship.
Under s 139S of the Act, the contribution that a bankrupt is liable to pay in respect of a contribution assessment period is 50 per cent of the excess of assessed income for the period over the "actual income threshold amount". Under s 139K, the base income threshold amount is an amount equal to 3.5 times the amount of a social security pension and this figure is increased by fixed percentages where the bankrupt has dependants to arrive at the actual income threshold amount. The contribution assessment was calculated on the basis of no dependants as:
Annual salary $54,000.00
Less income tax and Medicare levy $13,870.00
________
Assessed income $40,130.00
Actual income threshold amount $33,442.50
________Excess $6,687.50
________
50 per cent contribution liability $3,343.75
________
Ms Milsom sought review of the assessment under s 139T of the Act, which provides:
139T(1) If:
(a)the trustee has made an assessment of a contribution that a bankrupt is liable to pay to the trustee for a contribution assessment period; and
(b)the bankrupt considers that, if required to pay that contribution, he or she will suffer hardship for a reason or reasons set out in subsection (2);
the bankrupt may apply in writing to the trustee for the making of a determination under this section for that period.
139T(2) The reasons are as follows:
(a)the bankrupt or a dependant of the bankrupt suffers from an illness or disability that requires on-going medical attention and the supply of medicines, and the bankrupt is required to meet a substantial proportion of the costs of that medical attention or those medicines from his or her income;
(b)the bankrupt is required to make payments from his or her income to meet the cost of child day-care to enable the bankrupt to continue in employment or other work;
(c)the bankrupt is living in rented accommodation that is not provided by:
(i)the Commonwealth, a State or a Territory; or
(ii)an authority of the Commonwealth, a State or a Territory; or
(iii)a local government authority;
and the bankrupt is required to pay the cost of that accommodation wholly or mainly from his or her income;
(d)the bankrupt incurs substantial expense in travelling to and from the bankrupt's place of employment or other work, whether by public transport or otherwise;
(e)the spouse of the bankrupt, or another person residing with the bankrupt, who ordinarily contributes to the costs of maintaining the bankrupt's household has become unable to contribute to those costs because of unemployment, illness or injury;
(f)any other reason prescribed by the regulations.
Regulation 6.16 of the Bankruptcy Regulations 1996 (the regulations) states:
6.16 For the purposes of paragraph 139T(2)(f), of the Act, it is a prescribed reason that a circumstance has occurred in relation to the bankrupt or a dependant of the bankrupt that, in the opinion of the Official Receiver:
(a)is of an exceptional nature; and
(b)imposes an excessive financial burden on the bankrupt.
Ms Milsom said that she suffered a broken ankle in June 2002, a week prior to commencing new employment after being unemployed for six months. In view of her financial difficulties, she said that she took very little time off work and, after the use of crutches, then an air pump cast, she required the use of an ankle brace until early 2003. She said that, as a result of the ankle injury, she required ongoing hydrotherapy, chiropractic treatment, acupuncture and massage. Since December 2002, Ms Milsom has been receiving medical treatment for multiple gynaecological and hormonal problems causing haemorrhaging and exhaustion. She has been treated by a specialist medical practitioner and has had a surgical procedure at the Royal Women's Hospital, performed in November 2003. Ms Milsom said that she was able to pay the hospital fee only because her salary was paid on the same day. She maintained that she had medical accounts still owing of $500, which she has not been able to meet. She said that she has entered into arrangements to pay the amount by instalments. In addition to expenses for medical treatment, Ms Milsom said that she required ongoing psychological counselling. When she commenced counselling in April 2003, the counsellor's costs were subsidised. However, that counsellor moved away and the current counsellor, since October 2003, has been more expensive. She said that she has been forced by financial constraints to reduce her frequency of consultation and to negotiate deferral of payment. Ms Milsom said that her medical expenses since mid‑2003 had amounted to $2000. She was unable to estimate future medical costs, as this will depend on her next review with the specialist, which may result in the need for further surgery.
Ms Milsom lives in rented accommodation with her partner, Mr Tatnell. She has three children, one of whom, David, lives with her on a full‑time basis. Another son, Tim, lives partly with her and partly with his father. A daughter, Rebecca, lives away from her mother but normally spends one night per week at the residence of Ms Milsom. Her partner has two children who do not live with him, but visit and stay regularly. Ms Milsom said that she pays all expenses of the household, including food for all that stay at the house. She said that she is required to meet some of the costs of orthodontic and optical expenses for her two sons.
Ms Milsom said that her partner established his own business in 1990. While this was successful, initially, the business declined subsequently due to his health problems. After a long period of poor health, he was diagnosed with kidney stones in early 2002 requiring four hospital procedures. Recovery has been slow and Ms Milsom maintained that his income was insufficient to make any contribution to household expenses. She said that, prior to December 2003, her son, Daniel, contributed $50 per week towards food costs while he was employed. However, his employment ceased on 31 December 2003 and Daniel has returned to full‑time university study with a small income from part‑time work which does not provide sufficient to make any further contribution. No other family member has ever made a financial contribution to household expenses. Neither of her sons is in receipt of any benefits or allowances from the Government.
Ms Milsom has lived in rented accommodation in West Melbourne since September 2003. A private rental agreement for a 12‑month lease with a further year's option was entered into in the names of Ms Milsom and Mr Tatnell with the owner who was introduced through a friend. The rental of the 4‑bedroom residence is $1603 per calendar month or $370 per week. Ms Milsom maintained that she required this amount of accommodation for herself, her partner and their five children, who regularly use the house. She said that her workplace was at Fitzroy and both her sons attended The University of Melbourne. Consequently, the cost of travel from the residence is relatively modest. Ms Milsom acknowledged that cheaper equivalent sized accommodation was available and said that she had investigated alternatives. However, she believed that any cheaper alternatives were located at some distance from the city and the costs of removal, the significantly higher travel costs and the need to finance bond money and a month's rent in advance offset any possible savings in rent. She was doubtful that, with her credit record and status as a bankrupt, she would be able to obtain another rental property. While she accepted that her partner was jointly liable for the rent, she said that, without his ability to provide any money, it was necessary for her to pay the whole of the rent.
Ms Milsom's son, Tim, said that he divides his time between his mother and his father, and spends some two to three nights per week at his mother's house. He earns an income from casual employment but does not make any financial contribution to his mother. He is studying full‑time at university. He pays most of his own expenses with his mother and father sharing costs of medical expenses. He said that his orthodontic treatment was paid for by his father with his mother being responsible for such treatment of his brother, Daniel.
Ms Milsom's other son, Daniel, confirmed that he lived permanently with his mother. During 2003, he worked for the Student Union while deferring his university studies. In that time, he contributed $50 per week to household expenses. Since December 2003, he has made no financial contribution from his limited amount of casual work. He said that, while he expected his orthodontic braces to be removed within a few days, he would need a plate for 18 months and regular visits to the orthodontist for which he expected his mother to meet the costs.
Mr Tatnell gave evidence that, prior to 1999, he was earning a good income and contributed fully to household expenses. While his income decreased prior to February 2002, an urgent operation for kidney stones and significant subsequent complications meant that he was not able to earn any income for a long period. He is attempting, with difficulty, to redevelop his earlier consulting business but with little success. He said that, at present, his only income is from casual car park attendant work, which does not generate sufficient income for him to meet expenses other than personal expenses. He said that his total income for the year ended 30 June 2003 was less than $6000 and he has earned approximately $9000 gross income since then. He incurred expenditure in mobile telephone costs, travel, dry cleaning, etc in seeking to re-establish his business. Mr Tatnell said that he has been issued with a bankruptcy notice by the Australian Taxation Office for a debt of nearly $60,000 and he is in dispute with the Child Support Agency over an alleged debt of some $120,000. He is seeking to avoid bankruptcy in view of its likely effect on his ability to develop his business. He said that most of his business opportunities are in the central business district and living in West Melbourne keeps travel costs to a minimum. Mr Tatnell now has a motor vehicle, purchased for him by his brother for $1800 and is in need of repair.
Ms Lawson has been a financial counsellor since 1987. She was first consulted by Ms Milsom in April 2003, which resulted in the petition for bankruptcy. Ms Lawton said that she prepared an analysis of income and expenditure for Ms Milsom and the submission for a review of the contribution assessment under s 139T of the Act. She was of the strong opinion that Ms Milsom would suffer financial hardship if required to make any contribution to her bankruptcy based on that analysis. She was concerned that the expenditure, included in the analysis, made inadequate provision for contingencies and expenditure on clothing and shoes for a full‑time worker and no provision for contents or health insurance. While she believed that the actual income threshold amount was acceptable for an individual with no dependants, she was aware that Ms Milsom had a partner and two children who were partially, at least, financially dependant on her. Ms Lawton was of the opinion that Ms Milsom’s medical expenses were higher than the amount which might be seen as standard. She believed that Ms Milsom would have difficulty obtaining other rented accommodation as her bankruptcy and credit record would be shown on tenant database agencies. She said that, in her considerable experience with bankrupts, the proportion of income being paid in rent was not uncommon. The analysis produced by Ms Lawton showed the following income and expenditure per fortnight as at 20 June 2003:
INCOME Wages – M Milsom $1591.00
…
TOTAL $1591.00
_________________________________________________
EXPENDITURE Rent $740.00
Food Regular Shopping $280.00 *
Extras: Milk/Bread $40.00Lunches $20.00
Utilities Water $14.60
Phone (home) $29.70
Phone (mobile) $13.80
Gas $14.50Electricity $38.50
Transport (fares/taxis) $106.50
Medical/Dental/Optical $56.00
Clothing/Shoes $40.00
University costs (Tim) $13.40
Insurances No Provision
Gifts $23.00
Entertainment $27.00
Vets/Pets $61.00
Personal & miscellaneous e.g.
dry-cleaning/haircuts/newspaper/toiletries/etc $32.00
Contingency funding
eg cost to replace items
and emergencies $41.00TOTAL $1591.00
A note to the analysis stated that the expenditure on food was net of the weekly amount then contributed by Daniel.
It should be said that there is some confusion as to the net fortnightly salary derived by Ms Milsom. The statement of affairs, filed by Ms Milsom on 2 May 2003, in respect of her bankruptcy shows gross salary for the past 12 months of $48,703 and $54,000 for the next 12 months. In the contribution assessment, the trustee used the figure of $54,000, less $13,870 as tax and Medicare levy, giving a net $40,130 which is equal to $1543.46 per fortnight. The figure used by Ms Lawton was $1591 per fortnight, equalling $41,366 per annum. To compound this, Ms Milsom showed in her statement of affairs on a subsequent page, a gross fortnightly pay of $2307 and net pay of $1459, equalling $59,982 and $37,934 per annum respectively. Further confusion arises from a recalculation of a contribution assessment by the trustee on 9 December 2003, which showed the same $54,000 gross salary with a net salary of $42,894.30 equal to $1649.78 per week. Given this range of figures and the necessary use of estimates in expenditure, I am prepared to proceed with the consideration of this matter using the figure supplied by Ms Lawton.
Ms Gurvich gave evidence of conducting an Internet search on 13 February 2004 for a four-bedroom home in a rental price range of $201 to $300 per week. The search produced 54 properties within that price range. She acknowledged that there were no near city properties for $250 per week or less and that the majority of properties produced by the search were located in outer metropolitan suburbs. In response to Ms Milsom’s view that removal costs would be in the vicinity of $1100, being the cost incurred in moving to West Melbourne in September 2002, Ms Gurvich had ascertained that a furniture sized self drive van was available for rent at a cost of $90 per day during weekdays and $165 per day at weekends. She had no knowledge of the size of such van.
It was submitted for Ms Milsom that, if required to pay the contribution assessed, she would suffer hardship for reasons set out in paragraphs (a), (c), (e) and (f) of sub‑s (1) of s 139T of the Act. It was said that the illness of both Ms Milsom and her partner required her to meet higher than normal costs of medical attention and medicines from her income. Mr Stark submitted that, while it may be said that as a joint tenant, Mr Tatnell was liable for half of the rental cost of the residence, it was clear that he had no capacity to contribute and that Ms Milsom was required to pay the rent so as to satisfy s 139T(1)(c). It was argued that, while cheaper accommodation might be available, the costs of moving plus the higher costs of travel for Ms Milsom and her sons would offset any savings. It was further argued that Ms Milsom was both bound by the lease she had signed and was unlikely to obtain another rented property given her credit history. In relation to paragraph (c), it was submitted that Mr Tatnell had ordinarily contributed to house hold costs but had become unable to so contribute because of illness and that Daniel’s unemployment after December 2003 left him unable to make his previous contribution. Finally, it was submitted that the illness of her partner, the lack of available support for her two sons and a bankruptcy resulting from the business debts of her partner satisfied reg 6.16.
For the respondent, it was conceded that Ms Milsom suffers from an illness or disability, but it was submitted that the likely cost of medical attention and medicines was likely to be relatively low after allowance for Medicare rebates. It was submitted further that some of the expenditure was incurred on herbal medicine and acupuncture, which might be regarded as discretionary and not required medical costs producing hardship. In relation to the rental costs, it was submitted that Mr Milsom, a joint tenant, was not legally required to pay the full rent. It was said that alternative rental accommodation was available at lower cost, the cost of self moving could be relatively modest and that payment of a bond and one‑month's rent in advance would involve no additional costs if adequate notice was given to the current landlord and the bond money, held by that landlord, refunded. It was argued that additional travel costs were hypothetical and no allowance was appropriate for travel costs of the sons who were not dependants within the meaning of the Act. Mr Lhuede suggested that the boys could ride a bicycle to university to minimise travel costs. In relation to paragraph (e) of s 139T(1), it was submitted that the inability to contribute to costs must occur after the date of bankruptcy and not prior to satisfy this provision. It was argued that the use of the word “bankrupt” in paragraph (c) means that it can apply only to a change of circumstances after the date of bankruptcy. Finally, it was submitted that reg 6.16 had no application to the position of Ms Milsom.
At the outset, it should be said that I accept the analysis of income and expenditure prepared by Mr Lawton. I am satisfied that she is a highly qualified and experienced financial counsellor who has independently prepared the analysis. It is noted that, apart from copies of numerous medical accounts and accounts for other household expenditure supplied by Ms Milsom, there was no other equivalent analysis of expenditure. However, on the basis of the information before me, including the evidence of Ms Milsom of still having some $500 of part medical expenses unpaid, I am satisfied that she would suffer financial and emotional hardship if required to pay the contribution assessed. However, s 139T of the Act, requires such hardship to be for a reason set out in sub‑s (2) of that section. Given that all of the paragraphs of sub‑s (2) refer to expenditure of the bankrupt, it seems clear that, in the words of the Tribunal in Pearce and Official Receiver in Bankruptcy (AAT 9778, 11 October 1994), “…The 'hardship' must refer to the financial burden” and “…it must be the requirement to pay that contribution which creates a financial burden which is such as to justify a finding of hardship”. Further, the financial burden must arise from expenditure covered by sub‑s (2).
The respondent has correctly conceded that Ms Milsom suffers from an illness or disability and is required to meet a substantial proportion of the costs from her income. The question is whether such costs can cause her to suffer hardship if she is required to pay the assessed contribution. Based on the evidence of her illness, the costs incurred to date, including unpaid costs of some $500 and the uncertainty of the future, I am satisfied that the paragraph (a) applies.. I accept that her illness justified the cost of psychological counselling and this expenditure is not purely discretionary. Whether costs such as herbal medicine and acupuncture are necessarily incurred can be a matter of dispute but I accept the evidence of Ms Milsom that she has been properly advised to seek such treatment and, on balance, do not regard them as discretionary.
The more difficult question and the one which received the greatest concentration at the hearing is that posed by paragraph (c) of s 136T(2). Ms Milsom clearly is living in rented accommodation of a type provided for in the paragraph. I am satisfied that the words “required to pay the cost of that accommodation wholly or mainly from his or her income” should be interpreted according to its plain meaning. While there may be a legal liability on Mr Tatnell for a joint share of the rent, he has not and can not pay that share. In simple terms, if Ms Milsom does not pay the whole of the rent from her income, it will not be paid, she will be evicted and no longer have a roof over her head. In the normal meaning of the word, she is “required” to pay such rent. The further question then is whether the payment of the rent is a cause of financial hardship or is a discretionary amount which could be reduced by moving to alternate premises. In the case of Pearce (supra), the bankrupt had been paying rent of $520 per fortnight but the evidence before the Tribunal was that he had since moved to other premises at $380 per fortnight. The Tribunal said:
…
The fact that the applicant pays $520 per fortnight for rent is not a cause of financial hardship if that rental is a discretionary amount. The evidence is that the applicant has since removed his family to a less expensive house and his now paying $380 per fortnight for rent. That rental does not suggest that the present house is less than adequate and appropriate for the family and except for the distance from schools that was not suggested to be the case. The distance from schools is a factor only because a decision was made not to change schools.
In addition to the rental issue, the Tribunal found that there was a significant element of discretionary expenditure in other outgoings and concluded that the applicant in that case did not suffer financial hardship.
In this case, Ms Milsom had not since moved to cheaper accommodation. She is subject to a lease which, at the commencement of the contribution assessment period, had a further four months to run and now is to September 2004. While she may have been able to terminate the ease, at least, by September 2003, it is not clear that this could have been done in a financially neutral way. It is clear that equivalent accommodation is, at the date of hearing, and, probably, was available from the commencement of the contribution assessment period at a rental cost below that, which has and is being incurred by Ms Milsom. However, I accept that such alternative accommodation is at some significant distance from Ms Milsom’s place of employment and her sons’ university, which will involve considerably higher travel costs. While the actual cost of moving accommodation is unknown, it is clear that some costs would have to be incurred in removal costs and a tenancy bond, at least while awaiting the return of the bond money from the current landlord. In addition, while accepting that cheaper alternative accommodation is generally available, the more specific question is whether it is available to Ms Milsom. Her credit record and status as a bankrupt is likely to make it difficult to obtain a suitable lease of premises, particularly without a guarantee which she is most unlikely to be able to obtain. On balance, I am satisfied, and so find that the rental which Ms Milsom is required to pay from her income is not currently a discretionary amount and the payment of that rental will cause her to suffer hardship if she is required to meet the assessed contribution.
In dealing with paragraph (e) of s 139T(2) of the Act, I do not accept the submission for the respondent that it applies only to a change of circumstances after the commencement of bankruptcy. In my view, the use of the word "bankrupt" in the section is no more than a sensible, convenient and correct term to describe and identify the person who is required to pay the contribution and is entitled to apply for variation on the grounds of hardship. I am unable to accept that the words “who ordinarily contributes to the costs of maintaining the bankrupt's household” must be limited to apply to a person whose contribution was made after the commencement of bankruptcy. The assessment of contribution relates to a year commencing from that date of bankruptcy. The interpretation sought by the respondent would result in the section not applying where a person’s ordinary contribution ceased the day before. The plain words of the section must be taken to apply to a position where a bankrupt may suffer financial hardship if, at any time after the commencement of bankruptcy, the bankrupt’s net expenditure on maintaining the household increases as a result of a former contribution to such expenses by a person residing with the bankrupt having ceased as a result of unemployment, illness or injury. In this context, I would also regard the word "ordinarily" as meaning normally, in the ordinary way or to the usual extent. Here, it would be expected and had been the norm for Ms Milsom’s partner to contribute to household expenses, particularly those expenses relating to himself and his children. The evidence was that, prior to his illness and unemployment, he did so ordinarily contribute. I accept that temporal considerations are relevant so that it is appropriate to consider the time from when contributions were last made. However, on the facts of this case, I find that paragraph (e) applies to Ms Milsom as a significant contributor to hardship. It is noted, also, that, prior to December 2003, the son, Daniel, ordinarily contributed $50 per week but had ceased such contribution thereafter as a result of ceasing employment. If, as I do, accept that the analysis of Ms Lawton demonstrates financial hardship, it is clear that such hardship increased past December 2003 without Daniel’s contribution.
The circumstances of Ms Milsom, who has an illness and is with a partner who has suffered illness and, consequently, earns little, cause her difficulties and hardship. I am unable to find that “a circumstance” of an exceptional nature” which “imposes an excessive financial burden” on her has occurred. Her overall circumstances impose a financial burden, but I do not find that any of these circumstances can be said to satisfy the requirements of reg 6.16.
Consequent upon the above findings, it is appropriate that a new determination be made increasing the actual income threshold amount. As I have accepted the analysis of Ms Lawton, it is appropriate that the actual income threshold amount should be increased to an amount equal to $1591 per fortnight from 2 May 2003 and $1650 from 1 January 2004. The increase allows for the loss of contribution of $50 per week from Daniel and the increase in calculated net income shown in the 9 December 2003 re-calculation.
I certify that the twenty-four (24) preceding paragraphs are a true copy of the reasons for the decision herein of
Mr B.H. Pascoe, Senior Member
(sgd) Catherine Lake
Clerk
Date of Hearing: 17 February 2004
Date of Decision: 15 March 2004
Solicitor for the Applicant: Mr B. Stark, Consumer Credit Legal ServiceSolicitor for the Respondent: Mr M. Lhuede, Gadens Lawyers
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