Paterson and Inspector-General in Bankruptcy

[2000] AATA 325

DECISION AND REASONS FOR DECISION [2000] AATA 325

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No V99/901

GENERAL ADMINISTRATIVE  DIVISION       )          
           Re      Loretta Paterson  
  Applicant
           And    Inspector-General in Bankruptcy        
  Respondent

DECISION

Tribunal       Deputy President B.M. Forrest     

Date27 April 2000

PlaceMelbourne

Decision      The decision under review is set aside and a decision substituted that the applicant is not disqualified from early discharge from bankruptcy under s. 149ZA of the Bankruptcy Act 1966.            
   ........(Sgd. B.M. Forrest)...........
  Deputy President
BANKRUPTCY – Eligibility for early discharge – applicant meets qualifying criteria – whether applicant disqualified by omitting to disclose a liability in her statement of affairs – meaning of "failed to disclose a liability" – decision set aside.
Bankruptcy Act 1966 ss. 5, 6A, 54(1), 55(2), 92(1), 149S, 149T, 149ZA(1) and (2), 149ZC, 149ZM(b) and 304A
Bankruptcy Amendment Act 1991
National Health Act 1953 s. 99L
Westpac Banking Corporation v Morton (1988) 79 ALR 206

REASONS FOR DECISION

27 April 2000           Deputy President B.M. Forrest     

Introduction

1. Loretta Marion Paterson, a bankrupt, has applied to the Tribunal for review of a decision of the Inspector-General in Bankruptcy to reject her application for an early discharge from bankruptcy.  The practical effect of the rejection is that the applicant will not be eligible for discharge until 12 November 2001.

2. The jurisdiction of the Tribunal to review the decision is contained in s. 149ZM(b) of the Bankruptcy Act 1966 ("the Act"). 
   Background

3. The applicant presented a debtor's petition to the Official Trustee on 12 November 1998, accompanied by a statement of affairs.  In her statement of affairs dated 10 November 1998, the applicant included a list of eight unsecured creditors totalling $23,833.

4. On 24 November 1998 the Insolvency and Trustee Service Australia ("ITSA") in a letter to the applicant and in a report to creditors wrote that following completion of a preliminary assessment there was no requirement by the applicant to make any payments from income for the period 12 November 1998 to 12 November 1999 as her net income did not exceed the threshold of $27,127.10 applicable to the applicant at that time.

5. The letter and the report added that from the information provided in the statement of affairs, the applicant is eligible for an early discharge.  The applicant was informed that she could apply for early discharge six months after 12 November 1998. 

6. On 9 December 1998, Mr Kevin Ryan, Financial Counsellor, City of Darebin wrote, on behalf of the applicant, to ITSA advising that a debt of $652.75 to AGL for electricity supply was omitted from the list of creditors in the applicant's statement of affairs.  The letter also stated that the applicant entered hospital on 11 November 1998 for a serious hip operation and had forgotten about the AGL liability until her November bill arrived on 30 November 1998.  The actual bill was for $966.65 and the amount of $652.75 represented the period from 28 August 1998 to the date of bankruptcy.

7. On 20 May 1999 the applicant applied for early discharge under s. 149S of the Act. On 31 May 1999 ITSA informed the applicant that pursuant to s. 149ZA of the Act she was disqualified from early discharge because she failed to disclose the additional debt of $652.75 to AGL.

8. In a letter dated 28 June 1998 to ITSA, seeking a review of the ITSA determination, Mr Ryan requested that circumstances in mitigation of the omission be taken into account.  The statement of affairs was completed the day before the applicant was hospitalised for hip replacement surgery.  She was also concerned for the welfare of her 16 year old son residing on his own while she was hospitalised and in rehabilitation and in addition was worried by the added pressure of where she would live after the expected eight weeks hospitalisation and rehabilitation as three weeks earlier she had been given a notice to vacate her residence which was due to expire shortly before Christmas 1998.  The AGL account had apparently arrived while the applicant was in hospital.

9. On 15 July 1999 the Inspector-General confirmed the determination to reject the application for an early discharge. In his reasons the Inspector-General said the terms of s. 149ZA of the Act left the trustee with no discretion if a liability is not disclosed. He wrote:

   Section 149ZA of the Act refers to a bankrupt, whether intentionally or not, failing to disclose a liability that existed at the date of bankruptcy. Thus it is immaterial whether the omission was accidental, an oversight or deliberate. I appreciate the fact that the bankrupt did not intentionally omit to disclose a liability to AGL in her statement of affairs, and she had a number of serious personal problems at the time, however the wording of the section leaves the trustee with no discretion if the bankrupt does not disclose such a liability. A bankrupt is disqualified from an early discharge if, as in this case, he or she fails to disclose to the trustee a liability that exists at the date of bankruptcy."

Legislation

1. The provisions concerned with early discharge from bankruptcy are contained in Part VII Division 3 of the Act. These provisions were part of substantial reforms of the law relating to discharge from bankruptcy included in the amendments to the Act introduced by the Bankruptcy Amendment Act 1991.  The Explanatory Memorandum to the Bill introducing the 1991 Amendment Act provisions stated:

   "The 2 main purposes of the Bill are to establish a more efficient and effective means of securing contributions from the income of a bankrupt and to enhance the opportunities of persons with levels of debt that they have no prospect of repaying to begin the process of financial rehabilitation at an early date."

2. Section 149S of the Act enables a bankrupt to apply in writing to the trustee for early discharge at any time after six months from the date of filing of the statement of affairs.

3. To be entitled to early discharge a person must satisfy certain eligibility criteria and not meet certain disqualifying criteria. Under s. 149T of the Act, a person is eligible to apply for early discharge, if and only if, when the person applies for early discharge there is (relevantly in the present matter) no money available to pay a dividend to creditors; the person has not before or after the date of bankruptcy entered into a transaction that is void against the trustee; and the income the person is likely to derive during the period of one year beginning at the time the application is made will not exceed the income threshold amount applicable to the bankrupt at that time.

4. The applicant in the present matter satisfies the eligibility criteria to apply for early discharge. In addition to satisfying the eligibility criteria a bankrupt must also not be disqualified from early discharge under any of the disqualifying criteria contained in ss. 149X to 149ZE of the Act inclusive. One of the disqualifying criteria is failure to disclose to the trustee, any liability that existed at the date of bankruptcy: s. 149ZA of the Act.

5. Section 149ZA provides:

   "(1)     A bankrupt is disqualified from early discharge if the bankrupt has at any time failed, whether intentionally or not, to disclose to the trustee any liability of the bankrupt that existed at the date of the bankruptcy.

   (2)       The trustee may determine that the bankrupt has failed to disclose a liability as mentioned in subsection (1) if:

   (a)a person has lodged with the trustee a proof of debt that has been accepted by the trustee; and

   (b)       the bankrupt's statement of affairs:

   (i)        did not disclose that the person was a creditor; or

   (ii)did not disclose the debt claimed by the person or disclosed part only of that debt."

6. The word "debt" is given an extended meaning by s. 5 of the Act so as to include a liability.
   Consideration

7. Bankruptcy legislation has traditionally had the twin objectives of providing a return to creditors and the rehabilitation of the bankrupt.  The legislation recognises that it does not seek to inflict a penalty on a person who does not have sufficient means or any reasonable expectation of acquiring sufficient means to be able to make a contribution to creditors.

8. In submissions, Mr Ryan who assisted the applicant at the hearing referred to the Personal Insolvency National Standards ("PINS") published in "New Directions in Bankruptcy" Vol. 9 No. 2 July 1999, an ITSA publication.  Under the heading "Early Discharge" paragraph 8.6 of PINS reads:

   "In determining whether the bankrupt has failed to disclose any liability or a beneficial interest in property, the trustee must consider the materiality of the liability or property and the effect of its non disclosure."

9. The PINS were developed by a joint working party comprising members of the Insolvency Practitioners' Association of Australia and ITSA with a view to, among other things, ensuring consistency in the application of bankruptcy law and practice.

10. While I agree with the submission of Mr Giacco, solicitor for the Inspector-General that the PINS do not have binding force he did not go as far as to suggest that they are contrary to the purpose and intent of the legislation. The PINS in effect recite a policy formulated for the assistance of practitioners and administrators so as to ensure a consistent approach to bankruptcy practice. It seems to me that they amount to a set of guidelines not in the sense of being a ministerial determination: see for example s. 99L National Health Act 1953 but a set of general indications, not binding, but which have been developed for the assistance of practitioners and ITSA and to which ITSA will have regard in working towards a decision. Interestingly enough, while the concept of "materiality" referred to in paragraph 8.6 of the PINS does not appear in s. 149ZA of the Act it is to be found in s. 6A of the Act, a provision relevant to the content of a statement of affairs.

11. Mr Giacco, submitted:

    "…that s. 149ZA imposes a 'strict liability' in that the motives of a bankrupt in failing to disclose a liability to a trustee are irrelevant.  If a bankrupt, whether intentionally or not, has failed to disclose any liability the bankrupt will be disqualified from early discharge.  There is no discretion on a trustee to allow early discharge in circumstances where there has been be [sic] a breach of s. 149ZA(1).  Thus it is immaterial whether the omission was accidental, an oversight or deliberate.  The wording of the section leaves the trustee with no discretion if the bankrupt does not disclose such a liability, irrespective of any statement contained in the standards."

12. I agree with Mr Giacco that s. 149ZA does not give the trustee any discretion to have regard to a bankrupt's reasons for failing to disclose a liability. In that sense, it may be said to impose a "strict liability". At the same time, it must be remembered that disqualification from discharge only follows from an application of s. 149ZA if the person's circumstances are those which are prescribed by the section. What are the essential elements that make up the prescribed circumstances? There are two. The first is that the person has "at any time" failed to take the step as prescribed in s. 149ZA(1). The second is the step as prescribed i.e. the bankrupt has "failed…to disclose to the trustee any liability of the bankrupt that existed at the date of the bankruptcy".

13. Considering first the element of time, it might be thought that the words "at any time" could be read to apply without qualification. That, however, cannot be for they must be read in the context of the Act itself. While part of that context is the obligation upon the bankrupt to give a statement of affairs that is correct, another part is that creditors and the trustee are entitled to such a statement in making informed decisions as to their own positions and responsibilities, another part of the context is that there must be a point when some certainty is achieved in the administration of a bankrupt's estate. Consequently, in Westpac Banking Corporation v Morton (1988) 79 ALR 206 at 215, the Full Court of the Federal Court rejected a submission that the words "at any time" in s. 92(1) of the Act, which enables a secured creditor to apply to the trustee or the Federal Court for amendment of a proof of debt, mean that a secured creditor may make that application without regard to the time at which it is made. In particular, the Federal Court found that the words "at any time" had to be limited so that s. 92(1) of the Act could not be read as allowing a secured creditor to apply to amend a proof of debt when the effect of a successful application would be to alter vested rights after a compromise has been completed.

14. The context in which they are used in s. 149ZA(1) might also be thought to apply in interpreting the words "at any time" and so in reading them down. Part of that context is the issue of disturbance of vested rights but they are not in issue in this case one way or the other. The disclosure of the liability when it occurred did not alter any rights of creditors. It did nothing to achieve or dilute any returns to creditors. The applicant is and was at the relevant time in receipt of a social security disability pension; a provisional determination had been made that no dividend would be payable to creditors as her income was below the income contribution threshold and she had no assets of any description.

15. What is in issue in this case is the second step as prescribed by s. 149ZA(1) i.e. the bankrupt has "failed…to disclose to the trustee any liability of the bankrupt that existed at the date of the bankruptcy". That brings me to s. 149ZA(2) which gives meaning to the concept of "failed…to disclose a liability". On its face, s. 149ZA(2) refers to a specific situation in which the "…trustee may determine that the bankrupt has failed to disclose a liability as mentioned in subsection (1)…". That situation is one which, on its face, would be covered by the general words of s. 149ZA(1). That is to say, if a creditor has "lodged with the trustee a proof of debt that has been accepted by the trustee" and the bankrupt's statement of affairs neither disclosed that the person was a creditor nor disclosed the debt or part only of the debt as prescribed by s. 149ZA(2), the bankrupt has "at any time failed, whether intentionally or not, to disclose to the trustee any liability of the bankrupt that existed at the date of the bankruptcy" as prescribed by s. 149ZA(1).

16. What is the purpose of making specific provision for a situation already covered by the general provision? If that were its intention, it would be superfluous and, as a general principle, words or sentences in legislation cannot be regarded as superfluous or insignificant (see discussion at paragraph [2.12] in Statutory Interpretation in Australia. 4th edition, 1996, Pearce and Geddes). If s. 149ZA(2) is not to be superfluous, it seems to me that its purpose must be to define the circumstances in which a bankrupt "has failed to disclose a liability as mentioned in subsection (1)". In doing so, it limits the circumstances in which a person may be found to have "failed to disclose a liability as mentioned in subsection (1)" to those set out in s. 149ZA(2).

17. It might be thought that this interpretation could undermine the rights of a creditor to whom a bankrupt is liable but whose liability (or at least part of it) is not mentioned in the bankrupt's statement of affairs. There are three reasons why it does not. The first is that the bankrupt's statement of affairs is but one of the sources of information available to a trustee to determine a bankrupt's creditors and there is no requirement that a creditor be included within a statement of affairs before being entitled to lodge a proof of debt. The second is that, should a bankrupt omit to mention a creditor in his or her statement of affairs in a manner which amounts to being "engaged in misleading conduct in relation to a person in respect of an amount that, or amounts the total of which, exceeded $3,000" (as varied by s. 304A of the Act) a bankrupt is disqualified from early discharge by virtue of s. 149ZC of the Act. The third reason is that the interpretation provides certainty to the bankrupt as to the time at which he or she must make full disclosure. That time is the time of lodgement of the statement of affairs. For a person who becomes bankrupt on a debtor's petition, he or she must lodge that statement, and so make full disclosure, at the time of the lodgement of that petition (s. 55(2)) of the Act. Where a person becomes a bankrupt after a sequestration order has been made on a creditor's petition, he or she must file a statement of affairs in the office of the Official Receiver and furnish a copy to the trustee within fourteen days from the day on which he or she is notified of the bankruptcy (s. 54(1)) of the Act. If s. 149ZA(2) were not to limit the general operation of s. 149ZA(1), there would be no finality as to the time at which a bankrupt must advise of any liability.

18. Returning to the applicant's matter, I am satisfied that she did not disclose in her statement of affairs that AGL was a creditor and so met the criterion specified in s. 149ZA(2)(b)(i). I am also satisfied that AGL did not lodge a proof of debt with the trustee and so the applicant's case does not meet the criterion specified in s. 149ZA(2)(a). As the criterion specified in s. 149ZA(2)(a) and one of those specified in s. 149ZA(2)(b) must be met, I find that the trustee may not determine in the applicant's case that she has "failed to disclose a liability as mentioned" in s. 149ZA(1). Therefore, she is not disqualified from early discharge pursuant to s. 149ZA.

19. For these reasons the decision under review is set aside and a decision substituted that the applicant is not disqualified from early discharge from bankruptcy under s. 149ZA of the Act.

    I certify that the 28 preceding paragraphs are a true copy of the reasons for the decision herein of
    Deputy President B.M. Forrest

    Signed:         .....................................................................................
      Associate

    Date/s of Hearing  6 December 1999
    Date of Decision  27 April 2000
    For the Applicant  Mr K. Ryan, Financial Counsellor
    Solicitor for the Respondent    Mr J. Giacco, Australian Government Solicitor