Morgan and Inspector-General in Bankruptcy
[2005] AATA 519
•3 June 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 519
ADMINISTRATIVE APPEALS TRIBUNAL )
) No Q2004/773
GENERAL ADMINISTRATIVE DIVISION ) Re CHARLES KENNETH MORGAN Applicant
And
INSPECTOR-GENERAL IN BANKRUPTCY
Respondent
DECISION
Tribunal Deputy President Don Muller Date3 June 2005
PlaceBrisbane
Decision The Tribunal affirms the decisions:
(1) to reject an application to waive or remit the fees of the Official Trustee in Bankruptcy under Bankruptcy Regulation 16.13A imposed in the administration of the applicant’s bankrupt estate, and(2) to reject an application to remit the realisations charge under section 283 of the Bankruptcy Act 1966.
................SIGNED..............................
D.W. MULLER
DEPUTY PRESIDENT
CATCHWORDS
BANKRUPTCY – application to waive or remit fees in the administration of the applicant’s bankrupt estate – no undue hardship – decision affirmed to reject claims for waiver or remittal in relation to the fees incurred in the administration of the bankrupt’s estate and the realisations charge
Bankruptcy Act 1966: s55, 153A, 163(1), 283
Bankruptcy Regulations Reg. 16.07A, 16.13A
Bankruptcy (Estate Charges) Act 1966: s.6
Exell and Inspector-General in Bankruptcy [2000] AATA 13 (14 January 2000)
Ayoub and Insolvency & Trustee Service Australia (Inspector-General in Bankruptcy) (2002) 70 ALD 413
REASONS FOR DECISION
Deputy President Don Muller 1. Charles Kenneth Morgan, the Applicant, seeks review of two decisions made by the delegate of the Inspector-General in Bankruptcy, the Respondent, on 5 March 2004. Those decisions were:
(a)to reject an application to waive or remit the fees of the Official Trustee in Bankruptcy, under Bankruptcy Regulation 16.13A, and
(b)to reject an application to remit the realisations charge under section 283 of the Bankruptcy Act 1966.
2. On 12 February 2002, Mr. Morgan was made bankrupt under section 55 of the Bankruptcy Act 1966 on his own debtor’s petition. The Official Trustee in Bankruptcy became trustee of the bankrupt estate. The bankruptcy of Mr. Morgan was annulled on 27 August 2004 under section 153A of the Bankruptcy Act 1966.
3. A realisations charge in the amount of $3,288.52 was imposed and paid under section 6 of the Bankruptcy (Estate Charges) Act 1997 and Official Trustee’s fee in the amount of $8,530.46 were imposed and paid under Bankruptcy Regulation 16.07A and section 163(1) of the Bankruptcy Act.
4. By letters dated 6 and 23 February 2004, Mr. Morgan applied for waiver or remission of the Official Trustee’s fees under Bankruptcy Regulation 16.13A and for remission of the realisations charge under section 283 of the Bankruptcy Act.
5. On 5 March 2004, the Respondent refused the applications for waiver or remission of the fees and charges.
6. The facts of this matter are not in dispute and I find as follows:
(a)Charles Kenneth Morgan was born on 5 November 1923. He is now 81 years of age.
(b)He had a difficult childhood and left school at the age of 14 to work in the Post Office for 12 months.
(c)He then spent five years as an apprentice boiler maker in a ship yard.
(d)He served in the Australian Army in the Middle East during World War II.
(e)After World War II he went into business on his own account, including a period of running a country store.
(f)He married and raised two children.
(g)He separated from his first wife, but made financial provision for her and their two children. He transferred the matrimonial home to her.
(h)He subsequently re-married and purchased a home on the Gold Coast with his second wife as a co-owner. He paid for improvements to the house which included a swimming pool and entertainment area.
(i)In 1992, he and his wife had an acrimonious parting.
(j)He also had some unfinished business dealings with his second wife’s son, which dealings also became acrimonious.
(k)For the following ten years he attempted to settle his matrimonial affairs with his wife, including the split of the matrimonial home and to settle his business dealings with his stepson.
(l)Mr. Morgan gave lengthy evidence, including a written statement, in which he detailed his prolonged and anguished battle with his former wife and her family, their lawyer and his own lawyers. I will not traverse that evidence here but I accept that Mr. Morgan had a very traumatic and expensive experience over a lengthy period of time.
(m)By late 2001, Mr. Morgan had still not been able to settle his matrimonial affairs, and his stepson had successfully secured a judgment against him. The local sheriff proceeded to do an inventory of his assets with a view to seizure.
(n)Acting on advice from friends he applied for bankruptcy. He became bankrupt on 12 February 2002.
(o)The Official Trustee in Bankruptcy became trustee of the bankrupt estate.
(p)On 8 December 2003, Mr. Morgan and his wife attended a conciliation conference under the control of the Federal Magistrates Court for the purpose of resolving their dispute involving the former matrimonial home. An agreement was reached between Mr. Morgan and his wife that an amount of $105,000 be paid to the Official Trustee, as trustee of the property of Mr. Morgan.
(q)On 2 February 2004, Mr. P. Zaninovich, for the Official Receiver, wrote to Mr. Morgan to inform him of the estimated amounts that would be required to pay out his proved debt, fees, costs and charges of his bankruptcy in full. The estimate included an amount of $7,826.23 for Official Trustee fees and $2,850.92 for the 8% Realisations Charge.
(r)By letter dated 6 February 2004, an application by the Official Trustee was made to the Respondent on behalf of Mr. Morgan for waiver or remission of the Official Trustee’s fees under Bankruptcy Regulation 16.13A and for remission of the realisations charge under section 283 of the Act.
(s)The decision to reject the claim for waiver or remission of the fees was made on 5 March 2004.
(t)On 6 May 2004 the sum of $105,329.67 was received into the estate of Mr. Morgan.
(u)On 7 May 2004 a dividend of 100 cents in the dollar was paid to proved creditors.
(v)On 7 May 2004 the Official Trustee sent a cheque for $45,000 to Mr. Morgan. The payment was made by the Official Trustee because the funds were considered “surplus” to the amount that would be required to annul the bankruptcy.
(w)On 7 September 2004, the Official Trustee sent a further cheque for $19,223.14 to Mr. Morgan, being the balance of refund of the balance of surplus monies held in the bankrupt estate. That is, Mr. Morgan was paid a refund surplus totalling $64,223.14.
(x)Mr. Morgan currently lives alone in a house owned by his daughter. He pays his daughter rent of $165 per week. His daughter “lives across the road”. He is comfortable and can live well enough on his pension.
(y)Mr. Morgan owns a 1998 Ford Falcon motor car.
(z)Mr. Morgan is in good health. He had a holiday in New Zealand in July 2004, during which he was injured in a motor vehicle collision. He was ill for a few months but he has recovered.
7. Section 163 of the Bankruptcy Act 1966 provides for the remuneration of the Official Trustee, which is to be calculated as prescribed by the regulations. Division 2 of Part 16 of the Bankruptcy Regulations provides for fees to be taken by the Official Receiver. These fees are calculated on a percentage basis, not on a fee for service or time basis. The percentage calculation is based on the net “amount realised” in the bankruptcy. If there is no net realisation, there is no fee payable.
8. Regulation 16.13A provides for the waiver or remission of fees by the Inspector-General in certain circumstances:
“REG 16.13A Waiver or remission of fees by Inspector-general
(1)Subject to subregulation (2), the Inspector-General may waive or remit the whole or part of any fee.
(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.
(3)for paragraph (2)(a), undue hardship means hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy.”
9. The bankrupt estate is also required to pay the realisations charge under the Bankruptcy (Estate Charges) Act 1997 in the amounts shown earlier and by a nominated date, otherwise penalty charges apply, under s.281 of the Bankruptcy Act 1966. Section 6 of that Act provides:
“SECT 6 Realisations charge
(1)A charge, calculated in accordance with sections 7 and 8, is imposed in respect of amounts received by a person (including the Official Trustee) who, during a charge period:
(a)is the trustee of the estate of a bankrupt under the Bankruptcy Act 1966;
(2) The charge is payable by the person to the Commonwealth.
(3) The charge is payable within 35 days after the end of the charge period.”
10. Section 283 of the Act provides for the remission of the realisations charge.
“S.283 Remission of interest charge, realisations charge and late payment penalty
(1)The Inspector-General may remit an amount of interest charge, realisations charge or late payment penalty that is payable but has not been paid if the Inspector-General thinks that:
(a)failure to remit the amount would cause a person undue hardship; and
(b)it is appropriate to remit the amount.
(2)The following provisions apply in relation to remissions under subsection (1):
(a)the person liable to pay the charge or penalty may apply for a remission;
(b) an application is to be in writing, setting out the reasons for the application, and is to be made to the Inspector-General;
(c)the Inspector-General’s decision on an application is to be in writing;
(d) application may be made to the Administrative Appeals Tribunal for review of a decision to refuse an application, or to remit a lesser amount than was applied for.”
11. The realisations charge may only be remitted by the Respondent if it is “payable but has not been paid”. Once the charge has been paid, it may not be remitted.
12. Only the person liable to pay the charge may apply for remission under section 6 of the Bankruptcy (Estate Charges) Act 1997, the person liable to pay the charge is the trustee of the bankruptcy, in this case the Official Trustee. There was such an application by the Official Trustee, dated 6 February 2004, to the Respondent. That is, the application for remittal was made before the realisations charge was paid, by the person liable to pay the charge.
13. In respect of the question of who is liable to pay the Official Trustee’s fees the fees are payable by the bankrupt estate, not by Mr. Morgan. However, given that a dividend of 100 cents in the dollar has been paid by the bankrupt estate of Mr. Morgan it is Mr. Morgan who would in effect be paying the fees. That is, if the fees were to be remitted, then Mr. Morgan would benefit by way of receiving payment of an additional surplus from the remitted fees, after the payment of the remaining percentage of the dividend to creditors, and any further costs or expenses.
14. In respect of the question of remission of the realisations charge, the question arises as to whether Mr. Morgan is entitled to the benefit of any remission and whether undue hardship relates to him or whether it refers to the Official Trustee.
15. Subsection 283(2)(a) of the Act provides that it is “the person liable to pay the charge” who may apply for remission. In this case that person is the Official Trustee, who made the application, purportedly on behalf of Mr. Morgan on 6 February 2004.
16. Subsection 283 of the Act confers on the Inspector-General a discretion to remit an amount of the realisations charge if the Inspector General thinks that the failure to remit the amount would cause “a person undue hardship”; and “it is appropriate to remit the amount”.
17. In Bell and Inspector-General in Bankruptcy [2004] AATA 1035 (30 September 2004), the Tribunal, Deputy President D.G. Jarvis and Mr. D.J. Trowse, decided that section 283(1)(a) is intended to refer only to the hardship of the trustee. At paragraph 44 the Tribunal said:
“44. Counsel for the respondent also drew our attention to the Explanatory Memorandum for the Bankruptcy Amendment Bill 1996, which introduced s 283. This Memorandum says in respect of the then proposed s283 that, ‘(i)t will only be in exceptional circumstances that it would be appropriate (to remit the amount) such as in the case of a genuine and unavoidable error on behalf of the trustee.” This reference to the position of the trustee in conjunction with the scheme of the legislation, indicates that the section is intended to refer to hardship of the trustee, not the bankrupt. In the present matter, it has not been suggested that there is any hardship on the part of the Official Trustee, and of course this would be irrelevant to the position of Ms. Bell.”
18. However, in the cases of Exell and Inspector-General in Bankruptcy [2000] AATA 13 (14 January 2000), Deputy President B.M. Forrest, and Ayoub and Insolvency and Trustee Service Australia (Inspector-General in Bankruptcy) (2002) 70 ALD 513, Senior Member G. Ettinger, the Tribunal adopted the position that the term “a person” in s.283(1)(a) extends to any person, including the bankrupt.
19. The cases of Exell and Ayoub involved circumstances where creditors received 100 cents in the dollar and the surplus available to the bankrupt was accordingly reduced by the amount of the realisations charge. In those cases the Tribunal assessed the question of hardship in relation to the bankrupt, not the Official Trustee, in relation to the possible remission of the realisations charge.
20. I must admit that I do not find section 283 easy to interpret. I find it hard to envisage circumstances in which failure to remit the realisations charge would cause undue hardship to the Official Trustee. In circumstances where creditors receive 100 cents in the dollar remission of the realisations charge would automatically flow through to the bankrupt. It seems to me that the only person who is potentially affected by the charge in this case is the bankrupt.
21. However, it may be that section 283 does not have any practical effect in cases such as Mr. Morgan’s, but applies in different circumstances.
22. With respect I prefer the Tribunal’s interpretation of s.283 in Excell and Ayoub. That interpretation seems to me to give the section a more practical effect than the interpretation suggested in Bell.
Undue Hardship
23. The term “undue hardship” is defined in Regulation 16.13A(3) for the purposes of Regulation 16.13A(2)(a). See paragraph 8 above where Regulation 16.13A(3) is set out. It provides that “undue hardship” means “hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy”.
24. There is no definition of “undue hardship” specifically relating to s.283 of the Act but I will adopt the definition in Regulation 16.13A(3) for the purpose of s.283 for the sake of consistency.
25. Mr. Morgan does not claim that his bankruptcy has caused him undue hardship. In fact his bankruptcy had some very beneficial outcomes for him. It allowed him to keep the sheriff at bay. It allowed him to finally resolve his matrimonial property dispute. It allowed him to get paid some cash from the matrimonial dispute, which he did not look like getting during his 10 year struggle. It allowed him to pay his creditors.
26. Mr. Morgan has claimed that he has had a lifetime of undue hardship. In particular, he had a very difficult childhood and adolescence. Also he claims to have suffered great hardship in the last ten years during his battle with his second wife.
27. Mr. Morgan’s submission seems to be to the effect that he has suffered undue hardship in his lifetime and that therefore he qualifies for the remission of the fees.
28. I take the view that the undue hardship contemplated by the Act and the Regulations relates to the effect that the payment or non-payment of the fees would have on the life-style and living conditions of the bankrupt or ex-bankrupt. That is, whether the payment of the fees, or the remission of the fees, makes the difference between the bankrupt experiencing the usual financial hardship arising out of a bankruptcy or the bankrupt being subject to unusual or exceptional hardship.
29. In Mr. Morgan’s case the remission of the fees would put a few thousand extra dollars in his bank account, which would be nice for him. However, it would not make much difference to his lifestyle. He has a roof over his head. He has a late model car. He lives comfortably enough on his pension. He would not suffer undue hardship if the fees were not remitted.
30. I regard the matters relating to his difficult childhood and to his emotional battle with his second wife and the lawyers involved therein as irrelevant to this review.
31. The decisions to not waive or remit the fees are affirmed.
I certify that the 31 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President Don Muller
Signed: .....................................................................................
R. Link, AssociateDate/s of Hearing 24 May 2005
Date of Decision 3 June 2005
Applicant Mr. Morgan, himself
Solicitor for the Respondent Australian Government Solicitor
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