Piccolo and McVeigh

[2001] AATA 623

CATCHWORDS – BANKRUPTCY – Income contribution assessment periods – estoppel – whether contribution assessment notices may be issued in relation to each period – amount of "reasonable remuneration" received – whether applicant controlling mind of company – "income" – whether applicant's wife received money as a result of work done or services performed by applicant – fringe benefits tax – identification of benefits and appropriate legislation – decision set aside.

Bankruptcy Act 1966 – ss 77C, 116, 139K, 139L, 139M, 139P, 139Q, 139S, 139U, 139V, 139W, 139X, 139Y,
Bankruptcy Legislation Amendment Act 1996
Bankruptcy Regulation – Reg 4, 6.12
Companies (Vic) Code – s 542
Equal Opportunity Act 1984 (WA)
Fringe Benefits Tax Assessment Act 1986 – ss 7, 9,
Income Tax Assessment Act 1936 – s 26
Savings Accounts (Consequential Amendments) Act 1997

Australian Securities Commission v Kavanagh and Others (1993) 11 ACSR 148
Challen v Bendeich [1999] FCA 845
Comcare Australia v Hill (1999) 56 ALD 487; [1999] FCA 488
Federal Commissioner of Taxation v Cooke and Sherden (1978) 23 ALR 229; (1978) 78 ATC 4685; (1978) 9 ATR 310
Formosa v Department of Social Security (1988) 46 FCR 117; (1988) 81 ALR 687; (1988) 15 ALD 657; (1988) 9 AAR 260
IW v City of Perth and Others (1997) 191 CLR 1; (1997) 94 LGERA 224; (1997) 146 ALR 696; (1997) 71 ALJR 943
Macchia v Nilant [2001] FCA 7 (unreported, French J, 12 January, 2001)
Minister for Immigration, Local Government and Ethnic Affairs v Kurtovic 91990) 21 FCR 193; (1990) 92 ALR 93
Pickersgill v Freightbases Pty Ltd [1983] 3 NSWLR 117
Re Maria Esequiel Faisca and Commission for the Safety, Rehabilitation and Compensation of Commonwealth Employees (AAT 7973, 1 May, 1992)
Re Nelson and Inspector-General of Bankruptcy (1994) 35 ALD 113
Stevenson and Inspector-General in Bankruptcy (1996) 45 ALD 775
The Commonwealth v Verwayen (1990) 170 CLR 394; (1990) 95 ALR 321; (1990) 64 ALJR 540; [1990] ANZConvR 600; (1990) Aust TortsR 81-036
Waltons Stores (Interstate) Ltd v Maher (1988) 146 CLR 387; (1988) 76 ALR 513; (1988) 62 ALJR 110; [1988] ANZ ConvR 98; (1988) NSW ConvR 55-390; (1988) Q ConvR 54-284; (1988) V ConvR 54-309

DECISION AND REASONS FOR DECISION [2001] AATA 623

ADMINISTRATIVE APPEALS TRIBUNAL     )
  )          V1999/1397
GENERAL ADMINISTRATIVE DIVISION      )

Re                  JOHN PETER PICCOLO

Applicant

And                DEAN ROYSTON McVEIGH

Respondent

Tribunal:                   Miss S A Forgie (Deputy President)

Date:  2 July, 2001

Place:  Melbourne

Decision:  

The Tribunal:

1.sets aside each of the decisions of the respondent dated 4 September, 1999 to issue contribution assessment notices in relation to the contribution assessment periods:

(1)9 May, 1996 to 8 May, 1997 ("CAP 1");

(2)9 May, 1997 to 8 May, 1998 ("CAP 2");

(3)9 May, 1998 to 8 May, 1999 ("CAP 3"); and

(4)9 May, 1999 to 8 May, 2000 ("CAP 4");

2.substitutes for the decision in relation to CAP 2 a decision that a fresh contribution assessment notice may not be issued; and

3.remits each of the decisions in relation to CAP 1, CAP 3 and CAP 4 to the respondent with directions that he:

(1)calculate the applicant's contribution on the basis that:

(a)the monetary amount that the applicant received as reasonable remuneration from his employment with Poole Levy and Appel Pty Ltd in each of the contribution assessment periods was $35,000 per annum;

(b)any moneys paid to the applicant's wife from PIC Pty Ltd as trustee for the J & S Piccolo Family Trust during each of the contribution assessment periods (be it paid directly or through some other account such as that of Poole Levy and Appel Pty Ltd) is income in relation to the applicant;

(c)the value of the Mercedes Benz 300E is to be assessed according to the provisions of the Fringe Benefits Tax Assessment Act 1986 as modified by the Bankruptcy Act 1966 and the Bankruptcy Regulations; and

(d)the Mercedes Benz 500S is not to be taken into account in assessing the applicant's contribution; and

(2)issue a contribution assessment notice or fresh contribution assessment notices, as the case may be, in relation to each period.

S A FORGIE

Deputy President

REASONS FOR DECISION

On 6 December, 1999, the applicant, Mr John Peter Piccolo, applied for review of four decisions of the respondent, Mr Dean Royston McVeigh.  Mr McVeigh is a trustee in bankruptcy under the Bankruptcy Act 1966 ("Act") and is the trustee of the estate of Mr Piccolo.  All of Mr McVeigh's decisions were dated 4 September, 1999.  Each was an income contribution assessment in respect of various periods occurring between 9 May, 1996 and 8 May, 2000.

1. At the hearing, Mr Piccolo was represented by Mr Tsalanides of counsel and Mr McVeigh by Mr Galvin of counsel. The documents lodged pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975 ("T documents") were admitted in evidence.  Also admitted were a facsimile from Best Hooper to Mr McVeigh dated 22 July, 1999, a trust deed of Mr and Mrs Piccolo, letters from Mr Piccolo to Mr Healey and Mr McVeigh dated 26 April, 1999 and 16 March, 1999 respectively, a letter from the Insolvency and Trustee Service Australia ("ITSA") to Mr Piccolo dated 19 April, 1999, a company search of Poole Levy and Appel Pty Ltd ("PLA"), statements of Mr John Nolan, Mr McVeigh, Mr Healey, Mr J W Robinson and Ms Caterina Romagnano, Annual General Ledgers for the years 1997, 1998 and 1999, outlines of evidence of Mr Randolph Edward Clements, Mr Norman Kenneth Jones and Mr Piccolo, a BITA/AITA Indexation as at 20 March, 2000 and material attached to Mr Piccolo's statement of facts and contentions.  Mr Piccolo gave oral evidence in support of his case as did Mr Clements, Ms Romagnano and Mr Jones.  Mr McVeigh and Mr Dennis Healey gave oral evidence in support of Mr McVeigh's case.

THE ISSUE

1. There are five issues in this case.  The first is whether Mr McVeigh is estopped from issuing fresh contribution assessment notices.  The second is whether Mr McVeigh may issue a contribution assessment notice (or a fresh contribution assessment notice) in relation to each contribution assessment period.  The third is whether Mr Piccolo has received reasonable remuneration from his employment.  The fourth is whether an amount of money has been received by a person other than Mr Piccolo as a result of work he has done or services he has rendered.  The fifth issue relates to fringe benefits tax.  In the first instance, it concerns the identification of the benefits he has received.  In the second instance, it concerns the identification of the appropriate legislative provisions to apply in Mr Piccolo's circumstances.

BACKGROUND

1. On the basis of the evidence, I am satisfied that, Mr Piccolo became bankrupt on 9 May, 1996 upon the presentation of a debtor's petition.  For many years, he had been engaged in the sale and rental of real estate.  His wife, Mrs Sharon Denise Piccolo, is a teacher and, at the time of the hearing, was employed on a full-time basis at a secondary school. They have one daughter and two sons who, at the date of Mr Piccolo's bankruptcy, were 9, 7 and 5 years of age respectively.

1. Mrs Caterina Romagnano is the administration manager of PLA and has been since 1987.  She was first employed by Delvar Real Estate in 1977 or 1978.  Over the years, she has filled various roles, such as receptionist, sales secretary, advertising and property manager.  In July, 1979, Delvar Real Estate was bought by PLA.  At that time, Mr and Mrs Piccolo were not the owners of the shares in PLA.  They did not purchase them until September, 1987. 

1. Prior to his bankruptcy, Mr and Mrs Piccolo were the sole directors of PLA, which continues to operate the real estate agency business.  Mr Piccolo was also the secretary of PLA.  Both his appointment as a director and that of secretary ceased on the day he became bankrupt.  On that same day, Mr Ronald John Cocks was appointed as director and he is the officer in effective control.  Mrs Piccolo, who is a full-time school teacher, continued as a director of PLA (T documents, T30, p 2).  Prior to 1 May, 1996, 101 fully paid shares had been issued in PLA.  One share was held by PIC Pty Ltd, 50 by Mr Piccolo and 50 by Mrs Piccolo (T documents, T30, p 3). 

1. PLA is the trustee of the Rosin Poole Levy & Appel Unit Trust ("RPLA Unit Trust").  All of the units in the RPLA Unit Trust are owned by PIC Pty Ltd which, on 25 September, 1984, was appointed as the trustee of the J & S Piccolo Family Trust ("Family Trust") (Exhibit 3).  The Trustee of the Family Trust may pay, apply or set aside any part of the net income of the Trust Fund for any accounting period (i.e. any twelve month period ending on 30 June) for any charitable purposes it thinks fit or for any one or more of the General Beneficiaries.  If the Trustee does neither, the Trustees may accumulate the income (Exhibit 3, clause 4(1)).  The General Beneficiaries are the Specified Beneficiaries (including specified relatives of those Specified Beneficiaries) and any named in the Schedule to the Deed of Settlement as additions to the class of General Beneficiaries.  The specified beneficiaries of the Family Trust were Mr and Mrs Piccolo.  Elena Piccolo was named in the Schedule as an additional member of the class of general beneficiaries.

1. The Official Trustee in Bankruptcy ("Official Trustee") was initially Mr Piccolo's trustee in bankruptcy. He was later replaced by Mr McVeigh, who was appointed by the creditors (T documents, T15). That occurred in approximately September, 1996. Both the Official Trustee and Mr McVeigh have issued notices of assessment pursuant to s. 139W of the Act in respect of various contribution assessment periods ("CAPs") and assessing liability for varying amounts of income contribution. They are:

•9 May, 1996 to 8 May, 1997 ("CAP 1")

on or about 1 June, 1996 issued by the Official Trustee;

12 February, 1997 issued by Mr McVeigh in the amount of $13,846.00; and

4 September, 1999 issued by Mr McVeigh in the amount of $38,088.68. (T documents, T42)

•9 May, 1997 to 8 May, 1998 ("CAP 2")

21 May, 1998 issued by Mr McVeigh in the amount of $11,506.00; and

4 September, 1999 issued by Mr McVeigh in the amount of $24,829.63. (T documents, T43)

•9 May, 1998 to 8 May, 1999 ("CAP 3")

21 May, 1998 issued by Mr McVeigh in the amount of $11,164.00; and

4 September, 1999 in the amount of $28,014.70. (T documents, T44)

•9 May, 1999 to 8 May, 2000 ("CAP 4")

4 September, 1999 in the amount of $33,858.22. (T documents, T45)

1. In a letter dated 27 November, 1998, Mr Piccolo requested the Inspector-General in Bankruptcy ("Inspector-General") to review Mr McVeigh's amended assessment for CAP 1 and his original assessments for CAPs 2 and 3.  On 23 December, 1998, the Inspector-General set aside Mr McVeigh's assessments and substituted nil assessments.  Mr McVeigh applied to the Tribunal on 12 May, 1999 to review the Inspector-General's decisions.  As he was out of time, he applied for an extension of time and that was granted.  Mr Piccolo lodged an appeal to the Federal Court against the Tribunal's decision to grant that extension.  At about the same time, Mr Piccolo had instituted proceedings in the Federal Court in relation to Mr McVeigh's decision to lodge an objection against Mr Piccolo's discharge from bankruptcy.  On 23 July, 1999, Mr Piccolo's proceeding in relation to the extension of time was discontinued and each party bore its own costs.  Mr McVeigh's application to the Tribunal was also withdrawn at this time.

THE EVIDENCE

Previous proceedings

Mr James William Robinson

1. Mr Robinson is a solicitor acting for Mr Piccolo.  He stated that he had negotiated minutes of settlement with Mr Nolan and both had signed them.  A note on a copy of the proposed consent orders in relation to Mr Piccolo's appeal in the Federal Court read:

"The first respondent undertakes to forthwith to withdraw his proceedings in the AAT (Cth), which are proceedings No V 1999/82, in consideration, inter alia, of the respondent's consenting to an order that there be no order as to costs." (Exhibit K1 to applicant's Statement of Facts and Contentions)

1. Mr Robinson said in his statement that the basis of the agreement was that Mr Piccolo would forgo the order for costs he was likely to receive in the Federal Court proceeding in return for Mr McVeigh's accepting the Inspector-General's decision regarding the income contribution assessments that were the subject of the Tribunal's proceedings.  Mr Robinson said that Mr Piccolo would otherwise neither have agreed to the consent orders nor forgone his right to costs.

2. In giving oral evidence, Mr Robinson stated that Mr Nolan had told him that he, Mr Nolan, thought that Mr Piccolo would be successful in his appeal and would get an order for costs.  Whether or not he would be successful in the Tribunal was more difficult to predict.  He denied that Mr Nolan had told him that Mr Piccolo's appeal was frivolous.

1. The outcome of the negotiations was that Mr McVeigh would not go ahead in the Tribunal to review the decisions of the Inspector-General.  Mr Nolan wrote the minutes of their agreement.  Mr Robinson said that Mr Nolan chose the words used in the minutes but he understood them to mean that Mr McVeigh's application in the Tribunal would be dismissed and the Inspector-General's decisions confirmed.  There was no suggestion by Mr Nolan that Mr McVeigh was reserving his right to issue fresh contribution assessment notices.  The whole purpose of the agreement was to prevent a hearing as has happened.  At the time, Mr Robinson agreed that Mr Piccolo was not a party to the proceedings in the Tribunal between Mr McVeigh and the Inspector-General but said that he should have been named as a party.

1. A letter had been sent by facsimile to Mr Robinson earlier in the day on 23 July, 1999 by the Inspector General's solicitors. It contained confirmation of their instructions to consent to leave's being sought to discontinue Mr Piccolo's appeal with no order as to costs (Exhibit K1 to applicant's Statement of Facts and Contentions).

1. Mr Robinson considered that Mr McVeigh had kept tricks up his sleeve.  Mr McVeigh must have known that Mr Piccolo was hoping to obtain a discharge on the third anniversary of his bankruptcy.  He also considered that he had been misled if Mr McVeigh were relying on information he already knew to issue the fresh contribution assessment notices.  If Mr McVeigh were obliged to issue new notices, he should have done so as soon as possible after he received Mrs Romagnano's letter of 10 June, 1999.  He did not do so.

1. In cross-examination, Mr Robinson said that he had done a "bit" of bankruptcy during his 25 years of practice as a solicitor. He has not familiarised himself with the income contribution scheme of the Act and did not believe that he looked at it when he was discussing settlement with Mr Nolan. While he knew that s. 139W of the Act deals with a fresh assessment, Mr Robinson did not know if he discussed it at the time. Section 139W(2) obliges a trustee to issue a fresh notice where new matters come to his attention, he said.  There are no matters of which Mr McVeigh was not aware at the time.  He was aware of the matters in Mrs Romagnano's letter dated 10 June, 1999 (Exhibit M to applicant's Statement of Facts and Contentions) and rejected a suggestion that Mr McVeigh had not made his assessments on the basis of that material.

1. Mr Robinson said that he would not have recommended to Mr Piccolo that he abandon his appeal if any contribution assessment notices already issued were to be re-issued.

Mr John Nolan

1. Mr Nolan, a barrister at the Victorian Bar, said in his statement that he had been instructed to appear at the Federal Court on behalf of Mr McVeigh in relation to the appeal brought by Mr Piccolo against the Tribunal's decision to extend time.  The hearing was adjourned by consent from 25 June, 1999 to 23 July, 1999.  On 6 July, 1999, Mr Nolan received a letter from his instructing solicitors.  It enclosed a letter from Mr Piccolo's solicitors who offered to settle the matter on the basis of $2,300 for their costs and Mr McVeigh's consenting to the appeal's being granted.  Mr Nolan stated that he sought and obtained instructions.  Those instructions were that Mr McVeigh would abandon his proceedings in the AAT in consideration of Mr Piccolo's abandoning his Federal Court application.  Mr McVeigh had decided that he would issue further assessments on the basis of further information.

1. Mr Nolan said in his statement that, at no time in his discussions with Mr Robinson, did he give him any reason to suppose that Mr McVeigh would not issue further assessments or that Mr McVeigh accepted in any sense the Inspector-General's decision.

Mr Piccolo's employment prior to 9 May, 1996

Mr Piccolo

1. Before his bankruptcy, Mr Piccolo said, he was a director of PLA and, on a day to day basis, ran the company.  That involved him in signing reconciliation statements, overseeing trust accounts, employing and dismissing staff, listing, managing and selling property, liaising with various suppliers, obtaining new business.  In summary, he was a lot more active than he currently is.  He thought that he contributed to the profitability of PLA because of his ability to produce income by way of listing, managing and selling.  Of these, he was probably more involved with listing and managing than with selling.  He would have spent 60% to 70% of his time in managing and selling and 40% to 30% of his time in listing.  When he was told that Mrs Romagnano had suggested that he had never managed or sold property, Mr Piccolo replied that she had forgotten what he had done as it was over four years ago.  He denied that he had not been engaged in selling and managing very much and said that his role in the company involved him in marketing and listing, sourcing properties for sale, advertising and the like.

1. Mr Piccolo said that he had been paid a salary of about $35,000 and a car allowance.  He also agreed that he received drawings from PLA.  They were a loan so that the money had to be repaid.  The drawings were lent by the company, he said, as he had debts in relation to other property he owned.  Those properties have been sold since he became bankrupt.  Mr Piccolo could not recall whether there has ever been a loan agreement, either written or otherwise, which had been made between him and PLA and which stated that the drawings must be repaid.  There was no understanding between him and the directors of PLA as to when the moneys would be repaid.

1. Mr Piccolo agreed that he had supplied Mr McVeigh with details of the debits made to his loan account with PLA (T documents, T4).  Various expenses including accountants' fees, school fees, insurance, doctors' bills and bank loans are recorded.  In the financial year ending 30 June, 1994, expenses amounting to $79,207.83 were paid on Mr Piccolo's behalf through PLA's accounts.  The profit distributed by the RPLA Unit Trust to the Family Trust was $101,973.  In the financial year ending 30 June, 1995, the amounts paid on Mr Piccolo's behalf were $142,978.79 and the amount distributed by the RPLA Unit Trust to the Family Trust was $38,978.  The profit distribution in the year ending 30 June, 1996 to the Family Trust was $61,331 and PLA paid $193,380 for similar expenses on behalf of Mr Piccolo as in previous years.  The amounts paid to Mr Piccolo were entered in the particulars of the loan accounts held in Mr Piccolo's name by PIC Pty Ltd.

1. Before his bankruptcy, Mr Piccolo said, he would decide upon the salaries to be paid to staff after consultation with Mrs Romagnano if they were administration staff. 

Documentary evidence

1. Prior to his bankruptcy, Mr Piccolo was employed by PLA. 
   In his Statement of Affairs completed on 9 May, 1996, Mr Piccolo estimated that his salary for the previous 12 months had been $35,652.00 and his motor vehicle allowance $30,349.93 (T documents, T10, page 12).  In his 1995 group certificate, Mr Piccolo was shown as having received travelling allowance amounting to $30,341.93 for the year ending 30 June, 1995 (T documents, T5).  The income tax return lodged for the year ending 30 June, 1996 showed his salary as a real estate agent to be $35,652.00 and allowances and the like to have totalled $21,174.00 (T documents, T12).

Mrs Romagnano

1. Prior to his bankruptcy, Mrs Romagnano said, Mr Piccolo received drawings from PLA.  Those drawings were used to pay mortgage repayments on some investments he had at the time.  He did not receive any commission from listings or sales of properties.  Mrs Romagnano was unsure who determined his salary.  At that time, he was a director and she did not question the amount of salary he drew.  She did not question his drawings.  If asked to draw cheques, she did so.

1. Before his bankruptcy, Mrs Romagnano said, Mr Piccolo was the manager of PLA and was responsible for its day to day running.  He would employ and dismiss staff and staff would seek advice from him.  Mr Piccolo was responsible to the licensing authority.  Mrs Romagnano supposed that Mr Piccolo was also responsible to the bankers and accountants.  She did not agree that Mr Piccolo was responsible for the success or prosperity of PLA's real estate business.  PLA, she explained, had been well established and quite successful before his arrival in 1987.  Mrs Romagnano agreed that PLA had considerable prosperity before Mr Piccolo's bankruptcy "…but that had nothing to do with John's efforts alone." (transcript, page 21).  She said that  "The business can run without John Piccolo being present." (transcript, page 22)

1. She explained:

"He was the manager.  It is like I am the manager now.  Am I responsible for the profits of the company?  Well, I can tell you, I don't, because I have got a team of 20 members that contribute to the running of the company." (transcript, page 21)

1. Mrs Romagnano said that Mr Piccolo listed property but he has never managed or sold property.  By "managing a property for sale" (transcript, page 22) she meant attending the open for inspection and taking buyers through the property. 

Events on 1 May, 1996

Shares in PLA

1. On 1 May, 1996, Mr Piccolo transferred the 50 shares he owned in PLA to Mrs Piccolo (T documents, T6 and see also T32 and T9).  The consideration paid by Mrs Piccolo for those shares was shown as $100.00 (T documents, T6).  She then held 100 of the 101 issued shares in PLA and PIC Pty Ltd held the remaining share (T documents, T16).

Mercedes Benz 300E Sedan

Mr Piccolo

1. Mr Piccolo said that he could not recall whether he had instructed solicitors to write on 10 February, 1997 to Mr McVeigh's firm on behalf of his wife.  The letter advised that Mr and Mrs Piccolo were the joint owners of a Mercedes Benz 300E Sedan ("Mercedes Benz 300E") registered number JP 090.  That vehicle was subject to a lease from AGC.  The letter went on to advise that Mr Piccolo had been involved in a collision while driving the vehicle.  The estimated value of the damaged vehicle was $40,000 while the pay out figure on the lease was $40,572.  Mrs Piccolo proposed that she took over the lease of the vehicle on the basis that Mr McVeigh made no claim to any interest Mr Piccolo might have had in the vehicle.  If the arrangement were approved, Mrs Piccolo proposed to sell it immediately to avoid ongoing liabilities under the lease. (T documents, T17)

1. Mr McVeigh responded on 12 February, 1997 that the value of the vehicle was $60,000. When the pay out figure of $40,572 and the entitlement of $2,500 pursuant to s. 116(2)(ca) of the Act were deducted, he assessed the value of his equity as $16,928. Mr McVeigh offered to sell his equity to Mrs Piccolo for that amount. (T documents, T18)

1. Mr Piccolo said that he had transferred the Mercedes Benz 300E to PLA on 1 May, 1996 as he would not be able to afford the repayments from his new remuneration arrangement.  PLA had guaranteed the lease payments and it would be able to continue to make the payments.  At that time, there was no equity in the vehicle and he was not prepared to meet the shortfall on the lease.

1. When it was suggested to Mr Piccolo that PLA had been making the lease payments in any event, he said that he could not confirm that.  He was on a car allowance and, if there were a direct debit, that would not surprise him.  He regarded himself as making the payments for the vehicle before his bankruptcy.  Afterwards, the payments were made by PLA.

Documentary evidence

1. Mr and Mrs Piccolo entered a hire purchase agreement with Australian Guarantee Corporation Limited ("AGC") to purchase a secondhand, willow green Mercedes Benz 300E with an engine model number 10498022017647 and chassis number WDB 1240312B386096 (T documents, T3).  Its registration number was EWO-707.  The total amount payable was $145,028.40 and repayments extended over a 60 month period commencing on 12 August, 1992.  There were 60 monthly repayments of $1,897.14 with a final repayment of $31,200.00.  PLA was the guarantor in its own capacity and as trustee for the RPLA Unit Trust. 

1. A meeting held on 1 May, 1996 between Mr and Mrs Piccolo as the directors of PLA resolved that PLA should act in its capacity as the trustee of the RPLA Unit Trust.  In that capacity, PLA resolved to acquire a Mercedes Benz 300E Sedan from Mr and Mrs Piccolo for the sum of $53,040.00 (T documents, T8).  The vehicle had the same engine and chassis number as the vehicle subject to the hire purchase agreement with AGC.  Its registration number was JP 090.  At that time, there were seventeen payments of $1,897.14 (comprising interest and principal) remaining on the agreement with AGC and one of $27,256.29 (T documents, T40).  Together, those payments totalled $59,507.67.  The payments were made by PLA as were the running and maintenance costs.

1. A vehicle registration search shows that, on 15 April, 1999, Mr Piccolo was the registered owner of a green 1991 Mercedes Benz Sedan, registration number OZC 898 (T documents, T35).  Mrs Romagnano said that the car remained in the ownership of PLA despite its being registered under Mr Piccolo's name.  It is now driven by Mr Cocks.

Appointment of Mr Ronald John Cocks as director of PLA

Mr Piccolo

1. Mr Piccolo said that, when his bankruptcy was imminent, he had approached Mr Cocks to be a director of PLA in his place.  He had selected Mr Cocks as he had experience in real estate, was knowledgeable about it and had standing in the community.  Mr Piccolo said that he met Mr Cocks when he had worked for a finance company and had asked Mr Cocks to sign that company's bills of sale in his capacity as a real estate agent.  They have socialised in the last ten years to the extent that they have been out to dinner on one or two occasions.  It was his understanding that Mr Cocks had been semi-retired from the real estate industry.

1. Mr Piccolo said that he did not have much to do with Mr Cocks in his role as a director of PLA.  He would see Mr Cocks at PLA's offices weekly depending upon whether he was himself at the office.  Mr Cocks is on call and accessible during business hours each day.  When required, he performs auctions.  He would be physically present in the office one or two days each week.

Control of PLA since 9 May, 1996

Mr Piccolo

1. When asked what his wife contributes to the business of PLA, Mr Piccolo said that she liaises with Mrs Romagnano but, because he did not question either of them, he was not certain to what extent.  By "liaise", he meant "has contact with".  Whether they meet personally to have contact, he could not comment upon because, again, he did not question them about whether they met or whether they talked.  Mr Piccolo said that he did not talk to his wife at length about her communication with Mrs Romagnano.

1. He said that he did not know whether his wife derived an income from PLA and, if so, at what level.  When he was a director of PLA, he thought that his wife had received a drawing or loan moneys.  He was not sure how those moneys went to her as that was an accounting matter.

1. Although he could not recall having done so, Mr Piccolo accepted that he must have signed a transfer document in order to transfer the 50 shares he had held in PLA to his wife.  He also agreed that he had done so because of his imminent bankruptcy but denied that he had done so to ensure that his trustee or creditors did not acquire the shareholding in PLA.  Mr Piccolo said that he had understood that he could not be a director of a company once he had become bankrupt.  He had relied on the advice of his accountants who had provided him with a form of resignation for him to complete as director together with other documents that needed to be signed in order to comply with what he, as a bankrupt, could or could not do.  His accountants provided him with advice about his financial affairs generally as well as about his bankruptcy.  As he was not an expert in law, he said, he did not know whether, as a bankrupt, he could not be a director of a company but could continue to hold shares.

Mrs Romagnano

1. Mrs Romagnano said that she understood that Mr Cocks had taken a directorship of PLA after being approached by Mr Piccolo.  While she agreed that the directors are ultimately responsible for PLA, Mrs Romagnano said that she "basically run[s] the business" (transcript, page 13).  In answer to a question as to whom she answers to on a daily basis, she replied:

"That would be to Sharon – to John – to Ron Cox (sic), sorry, just in relation to issues that would relate to the estate agents licensing authority.  So they would be issues that would relate – trust accounts or sub agents, they would be the only times I would speak to Ron.  Not on financial matters.  I would not speak to Ron on financial matters." (transcript, page 13)

Mrs Romagnano denied that she answered to Mr Piccolo.

1. Mrs Romagnano said that she only needed Mrs Piccolo in the office if Mrs Piccolo had to sign anything for her.  Mrs Piccolo would go to PLA's office for that purpose.  That might occur once a week or twice a week or might not occur for two or three weeks.  Otherwise, she takes no notice of the business and leaves it to Mrs Romagnano. 

1. Mrs Romagnano said that she would see Mr Cocks if she needed any signatures for documents relating to the Business Licensing Authority.  Depending on whether she required him for signatures, Mr Cocks would attend at PLA's office once, twice or three times a week.

Mr Ronald John Cocks

1. On 11 March, 1999, Mr Cocks appeared before Mr Lynch for examination under s. 77C of the Act (T documents, T33). He said that he had retired in September, 1987 but continued to be a licensed real estate agent and an auctioneer. In addition, he maintained an association with his old firm and would conduct auctions for it once or twice a month.

1. Prior to his appointment as a director of PLA in 1996, he had not had any prior involvement with that company.  Twenty or more years ago, he had employed Mr Piccolo for some five years or so.  Although they did not see much of each other after Mr Piccolo left his employ, they did maintain a social relationship.  When Mr Piccolo became part of PLA, they talked now and again over the telephone.  Since Mr Cocks became a director of PLA, they see more of each other socially.

1. Mr Cocks said that Mr Piccolo telephoned him a little before May, 1996, told him that he was going to be in trouble and asked him if he would help him out by becoming the officer in effective control of PLA if he became bankrupt.   It would only be for a very short time until things were settled.  As far as Mr Cocks knew, PLA was owned by Mr and Mrs Piccolo.  He knew that Mr Piccolo is a real estate agent and that his wife is not.  Mr Cocks also knew that Mrs Piccolo is a school teacher "to some extent" but was not sure whether she still is (T documents, T33, page P-5).

1. It was Mr Cocks' understanding that Mr Piccolo would surrender the reins of the business to him and he explained:

"… I wasn't prepared to take over the job and be responsible as the officer in effective control is – and I imagine you know just what responsibilities that does have – I was not prepared to go there on the basis of somebody else actually controlling the show, where I was the responsible person who would be signing everything, as it were, and taking responsibility from the Department of Justice, the Estate Agents Board and whoever else of course is involved in those things. …

… Certainly real estate agencies and agents are very strictly controlled.  I'm sure you know that.  I wasn't prepared to have my situation where I would be signing documents, signing all sorts of documents each day or each month, unless I was in control of that." (T documents, T33, pages P-5 to P-6)

1. When asked what steps he had taken to ensure that he gained control over PLA, Mr Cocks replied:

"I left most of that to the administration department, which was Mrs Cathy Romagnano, once I got to know her – to make sure that she herself knew all about it and I felt quite content then to leave things in her hands so far as the administration was concerned, with of course checks and balances to some extent by myself in looking at figures. I took no real interest in the administration part of those figures, except to know what I was signing and stuff." (T documents, T33, page P-6)

1. As to whether he established any procedures to ensure that the business was conducted in accordance with good estate agency practice, Mr Cocks said:

"In my opinion it was already conducted that way, far better than many other estate agencies I have known over the years, and I was prepared to go along with the way it was then. My position was there but I did not make any changes to the way things were.   (T documents, T33, page P-6)

1. Mr Cocks agreed with the proposition that, when he took over as a director of PLA, he had a chat with Mrs Romagnano, looked at the books generally and, since then, has pretty much left it to her.  He did not remember which books he had looked at but knew that he looked at the figures.  Mr Cocks continued:

"Yes.  I've looked at figures that Cathy had.  But quite frankly – it may be all very well for some people to say they trust others and maybe others don't, but I had confidence in John Piccolo in the first instance and I knew that John Piccolo wouldn't be running a shoddy place or a place that wasn't making money or that wasn't run properly and that he didn't have the right staff to do it. So I didn't really concern myself to any great extent and haven't ever since – and my judgment at that time has really been okay, for the simple reason that nothing has gone wrong, and I still have every faith in Cathy Romagnano to do the administrative part, which is where I come in so far as being the one who's responsible." (T documents, T33, page P-11)

1. Mr Cocks said that, if he is at the office of PLA, he "… may be looking at what is going on all the time. …" (T documents, T33, page P-6).  He does not do anything as far as listing is concerned.  As to the time he spends in the office, Mr Cocks said that he is in and out on various days.  Thursday, however, is the day he spends time with Mrs Romagnano.   He does that:

"… to make sure that what is going on administratively is as I would think it should be, although here again I'm in her hands to a very, very great extent and my trust is in her. …" (T documents, T33, page P-6)

At other times, Mr Cocks is available on his mobile.  Some weeks he would receive 12 to 15 calls and other weeks not as many.  Most come from Mrs Romagnano but, on occasions, he has received calls from the sales manager at PLA.

1. In response to a question about whether he played a part in directing staff, Mr Cocks said that:

"Yes, I do.  I talk to the sales manager, I talk to the salesmen, give them a bit of a jig up every now and again.  I discuss things with the various administrative staff – that is young ladies, of which there are six – in general terms, how they're getting on with their work, how they're getting on with their – they've got new computers recently. I've discussed these things with them, in general terms again that – whilst I'm there to – well, to talk to them and see how their work was going, whether it was proceeding as they would like it to be or if they need some changes.  But most of my time certainly so far as the office is concerned is spent with Cathy." (T documents, T33, page P-11-P-12)

Mr Cocks said that the sales manager has discussed sales policy with him but he is a very experienced man and he has faith in him to run the show.

1. Mr Cocks was unable to estimate an average time he spent at the offices of PLA each week.  He was not prepared to answer a question whether it was fair to say that most of the time he was not at the offices.  The basis of his not being prepared was that "… it may create a situation in my job as the officer in effective control." (T documents, T33, page P-7).  Mr Cocks was prepared to:

"… say no more than that I go there at times that I feel that I should be there to look after the business." (T documents, T33, page P-7)

1. Mr Cocks said that he did not attend directors' meetings of PLA.  Mrs Piccolo does not go to the office when he is there and he does not go to her home.  They "… seem to do it over the phone", he said (T documents, T33, page P-8).  When asked how decisions were made about the profits of the business, Mr Cocks said that he had nothing to do with the profits and makes no decisions about their distribution.  Furthermore, he said that he did not know who made the decisions about that and queried why he should know.  When it was suggested to him that he might expect to know as the officer in effective control and a director of PLA, Mr Cocks replied:

"No, I don't believe so.  It doesn't interest me a bit.  I'm there on a temporary basis to run the business so long as … Yes, to run the business, not to distribute the profits or know where they're going to.  That has no interest." (T documents, T33, page P-9)

1. Mrs Romagnano shows him the figures of the company, Mr Cocks said, but he does not know how she determines them.  She has told him that PLA is making a profit.  At times it is going well and at others business may be slow but, in the long term, he believes the company has been, and is, doing well.  He does not, however, interest himself in the figures because, he said, "…they have nothing to do with me in the long run" (T documents, T33, page P-10).  When asked how, as a director, he satisfied himself that PLA was not trading while insolvent, Mr Cocks asked: "Am I compelled by law to satisfy myself in that?" (T documents, T33, page P-10).

1. Mr Cocks said that he had not been aware that, previously, there had been documented directors' meetings.  As to what was discussed at their informal telephone meetings, Mr Cocks said:

"Not a lot to do with the business I must say.  It's perhaps more of a social thing, because I know the business is going all right and she really doesn't take a lot of interest in it because she feels she's not the one who is actually running it. On the occasions that we've met perhaps socially and discussed these things and she's always – well, if I may put it that way, she's always so happy that I am there, having known me and trusts me – that there's someone else who's not there that perhaps she wouldn't trust so well." (T documents, T33, page P-8)

Mr Piccolo's employment from 9 May, 1996

Mr Piccolo

1. After his bankruptcy, Mr Piccolo continued to be employed by PLA.  He said that he had not received any drawings or moneys from a loan account since his bankruptcy.  Mr Piccolo agreed that, in the balance sheet of PIC Pty Ltd as trustee of the Family Trust, his wife's loan account was shown to have increased from approximately $298,000 as at 30 June, 1996 to approximately $390,000 as at 30 June, 1997 ie. in the first year of his bankruptcy (T documents, T19).  At the same time, his loan account had remained unchanged in the order of approximately $616,000.  When asked whether drawings were channelled to his wife, Mr Piccolo said that he did not know what happened to drawings.  After he lost control of the company, his position changed and he no longer had access to that information.

1. Whereas he had paid all expenses such as school fees prior to his bankruptcy, Mr Piccolo said that he could no longer afford to do so after it.  His wife then paid them.  He estimated that they cost $7,000 to $8,000 for each child each year.  When asked whether Mrs Piccolo paid for them with money derived from PLA, he said that she did and also paid for them from other sources.  He did not know whether it was exactly from PLA as she has other investments. 

1. Repayments of the debt secured by a mortgage over a house of which Mr Piccolo and his wife are the registered owners, have been made through either his drawings from PLA or those of his wife. 

1. Mr Piccolo said that he reported to Mr Cocks when necessary in the first year after his bankruptcy.  Subsequently, he has reported to either Mrs Romagnano or Mr Cocks depending upon what the matter is.  The Employee Position Description attached to the letter of 1 June, 1996 might have been prepared by the accountants or Mr Cocks and/or Mrs Romagnano in consultation with his wife.  He would have been informed by Mrs Romagnano that it was the arrangement that suited best at the time.  When he was not necessarily producing the income to match a higher salary, he could not afford to be more determined in his pursuit of money at the time.  Mr Piccolo said that he had not played any part in the preparation in any of the three Employee Position Descriptions.  When he ceased to be a director and became employed by PLA, Mr Piccolo thought that he would have talked to Mrs Romagnano about the terms of his employment.

1. Mr Piccolo denied that his role in the business of PLA has not changed since he became a bankrupt.  If he were an employer, he would not employ a bankrupt.  The thought has crossed his mind that he should seek alternative employment to minimise the loss to PLA.  He has also thought that this might be achieved by his being in the back room attending to administrative type functions rather than in the front room.  He is unable to quantify the loss caused to PLA by his being a bankrupt.  Mr Piccolo said that he now does advertising, liaises with the graphic designer and ensures quality control.  Before his bankruptcy, he "…was doing a hell of a lot more…" (transcript, page 69).

Documentary evidence

1. With effect from 1 July, 1996 Mr Piccolo was given the title of Sales and Marketing Co-ordinator and the Employee Position Description prepared for that position stated that he reported to the Officer in Effective Control/Director (T documents, T13).  A document set out his duties and is set out below.

1. In a letter dated 1 June, 1996, he was advised that his remuneration package had been reviewed and that he was to be paid a salary of $35,652.00 and the use of a motor vehicle being a Mercedes 300 E.  The value of that use was assessed as $1,924.00 giving Mr Piccolo a total remuneration package of $37,576.00 (T documents, T13).   Mr Piccolo's 1997 income tax return showed his salary as $35,652.00 (T documents, T12) as did his group certificate dated 14 July, 1997 (T documents, T20).  A calculation of Fringe Benefits Tax ("FBT") dated 31 March, 1997 showed the taxable value of the total private proportion of the use of a motor vehicle was $1,340.38 (T documents, T22).

1. In a letter dated 3 July, 1997, Mr Piccolo was advised that he was employed by PLA in the capacity of Commercial Property Manager/Sales Consultant and was responsible to the Officer in Effective Control/Administration Manager (T documents, T21).  It set out his duties and is summarised below.  His salary was $35,652.00 and he was to be given the use of a full maintained motor vehicle.  FBT would be based on 6% private use as per the log book supplied by Mr Piccolo.  Superannuation of 6% of gross income would be contributed by PLA.  A calculation of FBT dated 31 March, 1998 showed the taxable value of the total private proportion of the use of a motor vehicle was $1,073.92 (T documents, T23).  Mr Piccolo's group certificate for the year ending 30 June, 1998 showed his salary as $35,652.00 (T documents, T26). 

1. A letter of employment dated 1 April, 1998 described Mr Piccolo's position as Marketing Co-Ordinator/Auctioneer (T documents, T24).  His salary from 1 July, 1998 was shown to be $38,500.00 and he was responsible to the Board of Directors.  An unspecified amount of superannuation was stated to be payable to a nominated fund.  The duties of the position are set out below.

1. A comparison of the, job title, reporting requirements and duties given in each of the three employee position descriptions follows.  The order of the documents has been altered to enable a comparison to be made but no alteration has been made to their substance:

1 June, 1996   3 July, 1997    1 April, 1998 
Sales and Marketing Co-Ordinator    Commercial Property Manager/Sales Consultant     Marketing Co-Ordinator/Auctioneer 
Reports to Officer in Effective Control/Director       Reports to Officer in Effective Control/Administration Manager         Reports to Board of Directors
Conduct auctions       Conduct auctions       Conduct auctions       
           Conduct open for inspections            
           Conduct sales valuations  
           Management of commercial portfolio  
           Appraise commercial properties for sale or for lease            
List and sell all classes of real estate for sale or lease  
           Listing and selling residential and commercial properties                
Prospecting for new business             Source properties for sale and refer leads to sales team        
Prepare tender and proposals for new business  
Support departmental managers as required  
  Assist in sales negotiations (if requested)     
Prepare advertising schedules and process files in accordance with company policy          Write advertisements for properties for sale/lease and corporate promotions where required       Write advertisements for properties for sale/lease and corporate promotions where required       
Provide creative input to company marketing activities, where required  
Attend to copywriting and press releases for property advertisements; annual reports; local paper advertisements  Proof read final drafts of brochure/board/press copy and layouts     
Establish annual promotional calendar for sales and property management functions  
  Check sales files and ensure conformity to internal quality standards         
  Liaise with external graphic designers/copywriters where necessary           
           Attend network marketing meetings   Attend network marketing meetings  
Understand and comply with all pertinent legislation  
Attend to staff quality meetings and training sessions as directed  
Conduct departmental internal quality audits and issue nonconformances as appropriate               Ensure company systems relating to quality records are maintained
Act to prevent any non-conformities in the provision of services and the quality system     Act to prevent any non-conformities in the provision of services and the quality system          Act to prevent any non-conformities in the provision of services and the quality system      
Identify and record any problems with respect to service delivery and the quality system   Identify and record any problems with respect to service delivery and the quality system          Identify and record any problems with respect to service delivery and the quality system        
Initiate, recommend or provide solutions to any such problems through appropriate channels and confirm their implementation          Initiate, recommend or provide solutions to any such problems through appropriate channels and confirm their implementation    Initiate, recommend or provide solutions to any such problems through appropriate channels and confirm their implementation      
Act to control service delivery problems until the unsatisfactory condition has been corrected      Act to control service delivery problems until the unsatisfactory condition has been corrected     Act to control service delivery problems until the unsatisfactory condition has been corrected     
  (T documents, T13, T21 and T24)

Mrs Romagnano

1. Mrs Romagnano said that Mr Piccolo is paid a salary.  She said that she had prepared for Mr McVeigh a list of the sales that Mr Piccolo had been involved in during the financial years ending 30 June, 1997 and 30 June, 1998 and the part of the financial year ending 31 May, 1999.  The list showed the commission paid to listers of the various properties identified.  That paid to sales staff was blocked out.  Mr Piccolo's initials were shown in relation to the listers' commission.  On each occasion, it was shown as a zero amount. 

1. Mrs Romagnano agreed that Mr Piccolo's position in PLA had changed since his bankruptcy.  When asked who determined how his role in the business was to change, she replied that she would have had discussions with the accountants, who made her aware that there were certain roles that Mr Piccolo could not fulfil.  She was not too certain whether the accountants made the decision at the time but it was evident that, in view of his bankruptcy, Mr Piccolo could not be the officer in effective control.  There then followed an exchange with Mr Galvin:

"But in terms of making the actual decision within PLA, within Poole, Levy and Appel as to what – how his role would change? --- As to what John was going to do?

Yes, who made that decision? --- Well, I think the decision was probably made – well, discussions.  I had discussions with the accountants at the time.

No, but who – obviously you were not employing Mr Piccolo and neither was – were the accountants, so who made the decision? --- Well, Sharon made the decision at the time as to exactly what – as far as what John's role would be, yes, it would have to be discussions with John, I assume, as to what ---

Does she had a role in the business at this time, at the time of the bankruptcy? --- No, not an active role.

Is not it more likely that Mr Piccolo himself determined what he would do, how his role would?---Well, it was only a matter of what John was good at doing, I suppose, at the time. I mean, if he could not manage the company, you are taking away his primary duty, which is what he was doing at the time, other than perhaps listing. He has never managed and sold real estate, so that did not alter. The only duty that he was left with, that he could do a bit of sales and marketing." (transcript page 20)

1. Mrs Romagnano said that Mr Piccolo's salary had increased in the financial year 1998/99 because she had reviewed all of the salaries received by administration staff.  She had also determined the new salaries.  Mrs Romagnano said that she had discussed the salaries with Mrs Piccolo.  She told Mr Piccolo she would be reviewing his salary, and told him what the reviewed salary would be.  When asked what he had said to his reviewed salary, she replied:

"Well, I think he was happy to get whatever at the end of the day.  I mean, my view is that John Piccolo is paid way too much, what he is earning.

… He is paid way too much for what he is actually producing." (transcript, page 23)

Later, Mrs Romagnano agreed that it was left to her to set the salary that Mr Piccolo received.  That was so as she knew what was paid to people in the industry.  She could not justify Mr Piccolo's salary when she had regard to the work he does.  She does less and less as the days go by.  As to why she was paying him as much as she does, she said that his salary would not be reviewed for some time.  There has never been an occasion when a person's salary has been reduced because he or she is performing fewer duties.  Mr Piccolo should have resigned years ago as his presence at PLA is damaging its sales.  People do not entrust the sale of their property to a bankrupt.  Despite that, she has never considered dismissing him.  That would be an issue she would need to take up with Mrs Piccolo, she said.

1. Mrs Romagnano said that, with the advice of solicitors, she had prepared the Employee Position Description attached to Mr Cocks' letter to Mr Piccolo dated 1 June, 1996.  The accountants had prepared the letter itself.  At the time, Mr Piccolo and Mr Cocks were appearing before the Business Licensing Authority and it had wanted a clear outline of Mr Piccolo's duties.  Mr Piccolo was not eligible to be the officer in effective control of PLA.  Every real estate agency needs such an officer to ensure that there is a person who is liable if there are problems such as a deficiency in the trust account.  She thought that the accountants had received instructions to prepare the letter from Mrs Piccolo but she was assuming that to be the case and could not be certain.  At the time, Mrs Romagnano also was having discussions with the accountants in relation to the same issue.  Although Mrs Piccolo had not been involved in the business prior to her husband's bankruptcy, Mrs Piccolo would have had numerous discussions with the accountants and solicitors as to what was going to happen with the business.  As far as the dates and contents of those discussions were concerned, Mrs Romagnano had no knowledge.

1. Mrs Romagnano said that the real difference between Mr Piccolo's role in PLA before his bankruptcy and his role after that time was that he was no longer managing the company.  She did not mean that he was simply not a director of PLA.  He was not managing staff.  Mrs Romagnano was herself the manager at the time and still is.  Mr Cocks is the officer in effective control.  Mrs Romagnano cannot hold that position as she is not a real estate agent.

1. Mrs Romagnano agreed with Mr Galvin that she had asked Mr Piccolo to sign a document on behalf of PLA after he had become bankrupt.  That document had been headed "accommodation bills, floating rate, instructions and input" (transcript, page 29).  Mr Piccolo had not signed any other document on behalf of the company after his bankruptcy.

1. After his bankruptcy, Mrs Romagnano said, there had been a thought that Mr Piccolo would be good at listing properties i.e. bringing new business into the firm.  He would be good at listing as opposed to managing and selling, which he had never undertaken.  In her view, PLA suffered badly in the market place because of that decision.  She said that she was constantly trying to soothe the sales staff who told her that they were losing business to the opposition who told their clients of Mr Piccolo's bankruptcy.  Those sales staff have now gone to work for the competitors. 

1. The difference between the Employee Position Description attached to the letter dated 1 June, 1996 and that attached to the letter dated 3 July, 1997 arose from Mr Piccolo's failure to list enough business.  As he knew a bit about commercial property management, it was thought that he should be responsible for the portfolio.  At the time, PLA had 30 commercial properties.  His work as a sales consultant had diminished.  This does not appear from a comparison of the two employee position descriptions but his work had diminished because it was affecting PLA in the market place.

1. The Employee Position Description dated 3 April, 1998, Mrs Romagnano said, was prepared after she and PLA's sales manager had discussed Mr Piccolo's role.  They had agreed that Mr Piccolo should not be listing as PLA was losing far too much business.  She explained that listing meant that:

"… well, you get a lead and you basically go out there and have the authority signed.  You are gaining the business." (transcript, page 35)

Once the property is listed, it is referred to the sales team to manage.  To "source properties for sale and refer leads to salesteam" as required of him in the Employee Position Description does not, she said, equate with listing properties for sale.  A person who lists actually gets the authority signed.  PLA does not acquire the business until the authority is signed.  A property may be sourced but not be listed because the opportunity is lost for whatever reason.

1. Mrs Romagnano also distinguished sourcing and listing by saying that the person who lists the property is also responsible for organising all of the media advertising, the board and brochure copy.  She agreed that the task of writing advertisements was listed among Mr Piccolo's duties and is his role as Marketing Co-Ordinator.  He would not write the whole of every advertisement but would write in conjunction with PLA's copy writer.

1. Mrs Romagnano said that she was now managing the day to day business of the company.  Although she was not a director, she had assumed that responsibility as she knows the business well and has probably been in real estate longer than Mr Piccolo himself.  She does it because she enjoys it.  She is paid approximately $60,000.00 per year for managing PLA and for performing her administration duties.

1. Mrs Romagnano denied that the profitability of PLA's business has not declined because of Mr Piccolo's bankruptcy.  In response to a suggestion that the accounts of PLA suggest otherwise, she responded that the profits of the company do not relate only to sales issues.  They relate also to the property management department with which Mr Piccolo has nothing to do whatsoever.  Prior to his bankruptcy, Mr Piccolo had responsibility for bringing business into the property management department but he no longer does that.  There is a manager who is solely responsible for bringing in business to the property management department.

1. As to why Mr Piccolo continues to be employed by PLA when, in Mrs Romagnano's opinion, he is "paid way too much", she said:

"… basically, now, for the type of work that he is producing, he is paid way too much.  All he is responsible for now is for the marketing of the company.  I mean, I don't know how many hours he would put in a week, but I definitely can't justify someone on a gross package of just over 40,000, including superannuation, to be performing the duties that he does.  He does auctions, but he doesn't do as many now as he probably did in the past.  There are clients out there that specifically do not want John Piccolo to auction their property.  As to the reasons why, a lot of them do not tell us.  They basically say they don't like him and they don't want him to auction their property, but they are happy to give it to the company. In that case it is given to another auctioneer. I mean, as days goes by he is doing less and less, and with a lot of our sales people leaving and going to the opposition, I think it has probably worked against us. We have had three people leave over the past six weeks because they are not earning enough money. At the moment, we only have two sales staff in our sales department. Years ago we had six." (transcript pages 45-46)

1. As to why PLA continues to pay him as much as it does in the circumstances, Mrs Romagnano said:

"Well, I don't think John Piccolo will be getting a review for some time now.  There has never been a case where we have reduced somebody's salary because they have had reduced duties. May be that should be the case. I mean, as far as I am concerned, John Piccolo should have resigned years ago, because it has only been more damaging to the company having him there…" (transcript page 46)

She would not consider dismissing Mr Piccolo but it is a matter that she should take up with Mrs Piccolo.

Remuneration practice in the real estate industry

Mr Clements

1. Mr Clements is a real estate agent and has been for the past twenty seven years.  For the past three years, he has been the joint managing director of Raine & Horne (Victoria) Pty Ltd, which manages all twenty seven Victorian franchisees of the national Raine & Horne organisation.  Mr Clements is the director of five of those franchisee offices.  Twenty of his previous twenty three years were spent as a director of the franchisor, EJ Doherty (Australia) Limited.

1. In cross-examination, Mr Clements said that he understood that PLA operated in the Carlton, Fitzroy and Clifton Hill area of the Melbourne real estate market.  The market in that area had been quite good in the last two or three years.  PLA has a good profile in those areas.

1. Mr Clements described the hierarchy in a real estate office.  One group comprises the salespersons.  In a typical office, there are four salespersons and a manager.  Salespersons are required to list and sell real estate property.  Although the practice varies, in some firms properties are distributed evenly amongst the salespersons.  That gives each salesperson an opportunity to earn a listing commission.  Once a property is listed, it is advertised and potential buyers begin to make enquiries.  Buyers' enquiries are divided equally amongst the salespersons.  Where the manager is not competing against salespersons, the manager would assist the salespersons and represent the firm with those salespersons.

1. In his statement, Mr Clements said that it was not unusual for a person, who works mainly as an auctioneer and not in sales or listings, to be paid a salary only.  In his experience, a person paid a salary in the order of that paid by PLA to Mr Piccolo would not be paid commission in addition to that salary.  If a person were paid "full" commissions, it would be probable that he or she would not be paid a salary at all.  Instead, it would be more likely that he or she would be paid a retainer.  That retainer would be advanced to them each month and it would then be offset either monthly or quarterly against the commission he or she earned on sales in which he or she was actually involved.

1. In his oral evidence, Mr Clements said that, as far as salespeople are concerned, it is highly unlikely that they would be on anything else other than a retainer against commission earned from their listing and sales activities.  Since deregulation, salespeople would not receive a car allowance.  In cross-examination, Mr Clements said, salespersons are not paid a salary "…because all you will then breed are lazy sales people…" (transcript, page 12).

1. In cross-examination, Mr Clements said that a top class salesperson could earn anything up to $150,000 (or in one instance $350,000) but the average earnings of a salesperson would be in the order of $50,000 or $60,000.

1. There is no definite yardstick for the remuneration of managers of real estate firms, Mr Clements said.  Managers could be remunerated on a retainer basis but the amount of that retainer would be in the order of $24,000 or $25,000.  That retainer would be taken into account against commission earned from their listing and sales activities.  Many managers, however, do not wish to be paid on a retainer against commission basis as they do not wish to be asked to list and sell property when they face the distractions of management of an office.  In those circumstances, they prefer to receive a salary. 

1. Until recently, in Mr Clement's experience, managers were never paid a salary greater than $40,000 and the payments on a car lease.  The amount of payments on the car lease was generally determined by the length of time that the manager had been with the firm.  Some of the managers in Raine & Horne had a car lease payment of $500 each month and others had payments of approximately $1,000.  These days, lease payments are not commonly made because of fringe benefits tax.  Managers now purchase their own cars and they are paid a lump sum salary of approximately $50,000 to $55,000 at the most.  If managers happen to list or sell a property, they are not paid a commission on that listing or sale.  In cross-examination, Mr Clements said that some managers might be paid a salary higher than $55,000 but that depended upon the particular circumstances of the firm.  If the firm had an enormous and long established rent roll, a manager might be paid a much higher salary, given a more prestigious car, have a fully paid telephone and be given membership of certain clubs.  Such salaries cannot be paid in the northern suburbs where commissions are being cut to somewhere between 1% and 2% and there is no charge advertising.

1. Mr Clements said that it is extremely common to pay a manager in the region of $40,000 but not to pay him or her any commission.  The absence of any commission is explained by the fact that a manager is expected to spend time with other sales people, check their files, check whether they are servicing their clients and to submit offers on their behalf.  Activities such as these restrict a manager's ability to do his or her own listing and selling.  If a manager thought that he or she wanted to list and sell property and earn commission, he or she would not be given a salary of $50,000 and paid commission in addition to that salary.  Instead, the manager would be paid on the basis of a retainer in the order of $25,000 or $26,000 and commission would be paid against that retainer.  Where a manager is not a director of the company, Mr Clements expected that the manager would be responsible to the director.

1. Mr Clements said that directors generally try to keep their salaries at or under about $50,000.00 as that is a preferred tax bracket.  They then take drawings from the company and place that in their family's' trust accounts. 

1. Were a real estate agent's competitors to find out that he or she is bankrupt, Mr Clements said, they could use it against him or her.  It is, he continued, an unforgiving and competitive business.  

Mr Norman Kenneth Jones

1. Mr Jones is a chartered accountant, with 21 years experience.  He has worked in insolvency for 18 years and has been a registered trustee in bankruptcy since 1996.  Mr Jones said that he had managed and dealt with real estate agency businesses as an insolvency accountant.  In his experience, he said, it is not unusual that staff, who have no direct sales activity, are employed on a salary.  Mr Jones said that he had never come across a situation in which commissions are paid to real estate staff who are paid a salary in the order of that paid to Mr Piccolo.  If they were to be paid a salary at that level as well as commissions, the salary would be a retainer and commissions would be paid against that retainer.

Remuneration practice in PLA

Mrs Romagnano

1. In her position as PLA's administration manager, Mrs Romagnano said, she was responsible for 20 staff members.  Those staff members consisted of administration staff and the property management staff.  They report to her and she advises and directs them.  PLA's sales manager was responsible for the sales staff.  She said that she advises the property management staff on issues such as problems with tenants and landlords.  Property management staff do not deal with property sales.

1. Mrs Romagnano also said that she does all of the "financials" and liaises with the banks, accountants and solicitors.  By "financials" she meant that she kept records of every cheque received by PLA, wrote and signed every cheque for PLA and wrote every receipt.  She did all the banking.  Although PLA's accountants prepared the final balance sheets and profit and loss statements, she would prepare drafts for them.

1. Management staff are paid a salary and are not normally paid a commission.  PLA has six property managers and their salaries range from over $30,000.00 to $50,000.00.  The amount depends on the type of business that is generated.

1. Sales staff are paid on a retainer, which is offset against commission.  Commission is paid for listing a property for sale, managing a property and selling a property.  The commission for a personal listing is 10% of the gross commission and 5% for a listing generated through the company.  A commission of 7.5% is paid for managing the property.  The seller receives 15% for selling a property. 

Honda Sedan

Documentary evidence

1. On 3 April, 1998, Mr Piccolo and Ms Romagnano signed an agreement that she would sell to him for the sum of $15,600.00 a 1988 Honda Sedan Registration No. DQG 792 (T documents, T25)("Honda").  The purchase price was to be paid over a period of four years at the rate of $60.00 each week and with a final payment amounting to $3,120.00.

Mercedes Benz 500S coupe

Mr Piccolo

1. Mr Piccolo said in evidence that he had driven the Mercedes Benz 500S coupe ("Mercedes Benz 500S") owned by his wife a "few times" (transcript, page 86) and in his statement that he had driven it about 16 times (Exhibit F).  He would have taken it to the offices of PLA on several occasions when his wife asked him to take it to the authorised dealer.  The vehicle was bought by his wife in approximately September, 1998.  She did so for mixed reasons of investment and pleasure.  Buying the Mercedes Benz 500S was a bit like buying antique furniture or art.

Mrs Romagnano

1. Mrs Romagnano said that Mrs Piccolo, and not PLA, bought a 1995 Mercedes Benz 500S in approximately September, 1998.  She has seen the car but has not seen it at the premises of PLA since early 1999.  Even then, she has only seen it on one or two occasions.  There is a car park off a lane behind PLA's premises.  Once she has parked there in the morning, she would not know who is parked there during the rest of the day.

1. Mrs Romagnano said that Mr Piccolo does not drive the Mercedes Benz 500S as he drives the Honda.

PIC Pty Ltd loan accounts

1. Mr Piccolo had a loan account with PIC Pty Ltd .  The details of the account supplied to Mr McVeigh by Mr Piccolo show that there were various credits and debits to the account during the years ending 30 June, 1993, 1994, 1995 and 1996 (T documents, T4).  Among those amounts debited were $78,121.00 and $142,977.00 described as "PLA Transactions" in 1994 and 1995 respectively and $193,380.00 described as "PLA Drawings" in 1996.  As at 30 June, 1996, Mr Piccolo's loan account was in the amount of $616,254.00 and no transactions were recorded in the years ending 30 June, 1997 and 1998. 

1. The loan account details are consistent with the balance sheet of PIC Pty Ltd as trustee for the J & S Piccolo Family Trust for the year ending 30 June, 1997.  In that document, an amount of $616,253.83 is shown as an unsecured loan to Mr Piccolo for the years ending 30 June, 1996 and 1997.  It also records the amounts given to Mrs Piccolo on the basis of their being unsecured loans.  The amount of her unsecured loan as at 30 June, 1996 was $298,010.24 and as at 30 June, 1997 was $390,463.06. (T documents, T19)

PIC Pty Ltd's as a member of a consortium

Mr Piccolo

1. Mr Piccolo agreed with Mr Galvin that PIC Pty Ltd had been a member of a consortium that had taken over the real estate agents, Woodards.  He was then not sure whether it was PIC Pty Ltd or PLA because that was an investment his wife, and not he, chose to make.  She did not discuss it with him "…at length" (transcript, page 71).  The financial adviser, Mr Paul Luntz, conducted the negotiations on her behalf.  When asked whether he played any role in the acquisition by PIC or PLA in the interest in the consortium, Mr Piccolo replied, "Only when asked to do so" and "If my wife asked me to offer an opinion" (transcript, page 72).  As he had worked for Woodards in the past, he was able to offer her an opinion about the firm.

1. Mr Piccolo thought that Mr Luntz had approached his wife late in 1999 or early in 2000.  When asked whether he was sure Mr Luntz had not approached him, Mr Piccolo replied:

"I think I picked it up at Kooyong, when I was playing squash there, and I heard a whisper. And I can't recall specifically. I am just trying to think. As a matter of fact, I had heard that same – this had been going on – I had heard it a year earlier, but nothing eventuated." (transcript, page 73)

One thing led to another, Mr Piccolo said, and it was an investment opportunity that was given to his wife.  The opportunity came about because Woodards was put on the market. 

1. He denied that it had been his idea to invest in Woodards.  He continued:

"Well, I think I have said that there were other people involved and they were the prime movers, not myself." (transcript, page 74)

His wife made the decision about the investment.  She is a very strong person and does not like him to make decisions on her behalf.  When asked why she would pursue that investment if he had not directed her to do so, Mr Piccolo said that she has made other more substantial decisions and she has the right to make that type of decision without any interference from him or any other third party.

Method of preparing contribution assessment notices

Mr Norman Kenneth Jones

1. Mr Jones noted that the each of the three assessments dated 4 September, 1999 for the years ending 8 May, 1997, 1998 and 1999 are ineffective as they had been issued after the year to which they relate.  He referred to Challen v Bendeich [1999] FCA 845 (Spender, Burchett and Hely JJ).

1. Mr Jones considered that Mr McVeigh had calculated the fringe benefit of the Mercedes Benz 300E in accordance with the Fringe Benefits Tax Assessment Act 1986 ("FBTA Act") in its unmodified form i.e. as not modified by r. 6.12 and Schedule 4 of the Bankruptcy Regulations ("Regulations").  He considered that the correct approach to the fringe benefit value of the Mercedes Benz 300E was in accordance with the Inspector-General's decision dated 23 December, 1998 (Exhibit J to applicant's Statement of Facts and Contentions).  For the same reasons, Mr McVeigh's assessment of the fringe benefit value of the Mercedes Benz 500S was incorrect if, indeed, it was a fringe benefit at all.  If Mr Piccolo used his wife's car only occasionally, it was not a fringe benefit within the modified meaning of r. 30.03(a) and (g) of Schedule 4 to the Regulations.

LEGISLATIVE BACKGROUND

The framework of the contribution provisions

1. Division 4B of the Act is concerned with contribution by a bankrupt and recovery of property. In specified circumstances, a bankrupt is liable to pay to the trustee a contribution in respect of certain contribution assessment periods. They are set out in Subdivision D of Division 4B.  Certain sections in that Division were amended by the Bankruptcy Legislation Amendment Act 1996 ("Amendment Act"). Some applied in relation to each bankrupt for whom the date of the bankruptcy was on or after the commencement of the Amendment Act and others applied to all bankruptcies current on or after its commencement. The Amendment Act commenced on 16 December, 1996. I will refer to the provisions of the Act in the form in which they apply in this case.

1. The liability to pay a contribution is found in s. 139P. Subject only to the provisions of s. 139Q regarding changes in the liability of a bankrupt, he or she is liable to pay a contribution to the trustee in respect of a contribution assessment period if:

"… the income that a bankrupt is likely to derive during a contribution assessment period as assessed by the trustee under an original assessment exceeds the actual income threshold amount applicable in relation to the bankrupt when that assessment is made …" (s. 139P(1))

1. If the income that a bankrupt is likely to derive during a contribution assessment period as assessed by the trustee under an original assessment does not exceed the actual income threshold amount applicable in relation to that bankrupt when that assessment is made, he or she is not liable to make a contribution.  He or she may, however, choose to pay a contribution.  Again this provision is subject to
   s. 139Q. (s.139P(2))

1. The definition of the expression "contribution assessment period" was amended by the Amendment Act. The new definition applies to bankruptcies for which the date of the bankruptcy is on or after the commencement of the amendment (i.e. 16 December, 1996). As Mr Piccolo's date of bankruptcy was prior to that date, the definition of a "contribution assessment period" prior to its amendment by the Amendment Act read:

"… a period that:

(a)begins on:

(i)the commencement of the bankruptcy or the commencement of this Division, whichever is the later; or

(ii)an anniversary of that commencement, being an anniversary that occurs during the bankruptcy; and

(b)ends one year after that commencement or that anniversary, as the case requires, or if the bankrupt is discharged within that year, ends upon the discharge." (s. 139K)

1. The expression "original assessment" is defined to mean in relation to a contribution assessment period "… the assessment made by the trustee under subsection 139W(1) in respect of that period." (s. 139K).  In so far as it applies to Mr Piccolo's circumstances, the expression "actual income threshold amount" at the time an assessment is made in relation to a contribution assessment period means:

"(c)     if the bankrupt has 2 dependants at that time – the base income threshold amount increased by 27%" (s. 139K)

The expression "base income threshold amount" at the time when the assessment is made in relation to a contribution assessment period means:

"(a)     for a contribution assessment period of one year – 3.5 times the amount that, at that time, is specified in column 3, item 2, Table B, point 1064-B1, Pension Rate Calculator A, in the Social Security Act 1991; or

(b)for a contribution assessment period less than one year – a proportionally smaller amount based on the number of whole days in the period." (s. 139K)

1. The amount of the contribution that a bankrupt is liable to pay in respect of a contribution assessment period is the amount worked out in accordance with the formula:

"Assessed income – Actual income threshold amount
  2" (s. 139S)

1. For the purposes of s. 139S, the expression "assessed income" means "… the amount assessed by the trustee to be the income that the bankrupt is likely to derive, or derived, during the contribution assessment period".  The "actual income threshold amount" means "… the actual income threshold amount assessed by the trustee to be applicable in relation to the bankrupt when the assessment is made" (s. 139S).

1. The bankrupt is required to provide a statement of his or her income during a contribution assessment period and indicating what income he or she expects to derive in the next contribution assessment period.  He or she must do so as soon as practicable and, in any event, no later than 21 days after the end of that completed contribution assessment period (s. 139U).  Where the trustee considers that he or she has reasonable grounds to suspect that the bankrupt has given information that is false or misleading in a material respect or has omitted any material particulars from the statement, he or she may require the bankrupt to give him or her information or books (s. 139V).

1. Section 139W sets out the manner in which the trustee must make an assessment of the bankrupt's income and contribution.  At the time Mr Piccolo became bankrupt on 9 May, 1996, s. 139W(1) was in slightly different terms from that in which it appeared at the time Mr McVeigh made the assessments under consideration in this case. The amendments were made by the Amendment Act and applied only in relation to each bankrupt for whom the date of bankruptcy was on or after the commencement of the amendments on 16 December, 1996 (Amendment Act, Schedule 1, Part 2, item 464). In its form prior to the Amendment Act, s. 139W(1) read:

"As soon as practicable after the start of each contribution assessment period in relation to a bankrupt and before the bankrupt is discharged, the trustee is to make an assessment of the income that is likely to be derived by the bankrupt during that period, of the actual income threshold amount that is applicable in relation to the bankrupt when the assessment is made and of the contribution (if any) that the bankrupt is liable to pay in respect of that period under section 139S."

1. The trustee might make a fresh assessment if any one of the three events specified in s. 139W(2)(a), (b) and (c) occurred.  Section 139W(2)(b) was amended by the Amendment Act and applies to all bankruptcies that were current on or after 16 December, 1996 (Schedule 1, Part 2, item 465). The opening words of s. 139W(2) were also amended and the amendment applies in relation to each bankrupt for whom the date of bankruptcy was on or after 16 December, 1996 (Schedule 1, Part 2, item 464).  As the section applies in this case, it reads:

"If at any time, whether during or after a contribution assessment period but before the bankrupt is discharged, any one or more of the following paragraphs applies or apply:

(a)the trustee is satisfied that the income that is likely to be derived, or was derived, by the bankrupt during that period is or was greater or less than the amount of that income as assessed by the last preceding assessment in respect of that period;

(b)the base income threshold amount increased or decreased after the making of the last preceding assessment in respect of that period and before the end of that period;

1. Identifying similar work is the first aspect of s. 139Y(1)(b)(ii).  The second is that there must be a determination of the remuneration received by a person engaged in that similar employment "where there was no relationship or other connection between that person and the person for whom the employment, work or activities were carried out".  Mr Galvin pointed to the legislative history of the provision in support of his submission that regard could be had to the remuneration in the form of salary and drawings that Mr Piccolo received as a director of PLA prior to his bankruptcy.  That remuneration, he submitted, reflected the value of his work and his status in the real estate industry.  Mr Galvin referred to paragraphs 25.43-25.44 of the Explanatory Memorandum to the Bankruptcy Amendment Bill 1991 accompanying:

"25.43 Proposed section 139Y will enable the trustee of a bankrupt estate to assess the bankrupt as having an income which is reasonable in light of the actual work or activities carried out by the bankrupt. Some bankrupts claim not to be in receipt of income, or indeed to be unemployed, but their lifestyle and activities are quite inconsistent with such claims. Usually in such circumstances, all the income generated by the bankrupt's activities is channelled into another entity, which in turn provides the bankrupt with non-cash benefits, from food and clothing through to residential accommodation and transport. Under the present law, trustees cannot disregard such blatantly artificial arrangements – the proposals in the Bill will ensure that such arrangements can be disregarded for the purposes of making an assessment of the income of the bankrupt.

25.44              Proposed subsection 139Y(1) is directed principally to a situation where the bankrupt claims either that he or she generated a low income from work which might otherwise be expected to generate a higher income, or that he or she is unemployed, but in fact carries out activities which resemble work and from which income is generated."

1. These paragraphs are directed to those aspects of s. 139Y that concern the fact that a bankrupt is engaged in activities that are potentially income generating but from which he or she is receiving either no income or less income than he or she would reasonably be expected to receive.  They do not address what he or she would reasonably be expected to receive i.e. what is "reasonable remuneration". That is the subject of paragraph 25.45 of the Explanatory Memorandum which effectively repeats what is contained in s. 139Y(1)(b)(ii).  Paragraph 25.46 makes it clear that there need be no contract, agreement, arrangement or understanding between the bankrupt and anyone else, for whom, or on whose behalf, the bankrupt engaged in the activities.  Neither paragraph 25.45 nor 25.46 refers to there being no relationship or other connection between the person whose remuneration is considered and the person for whom the employment, work or activities are carried out.  The Second Reading Speech does, however, allude to his when it states that:

"… The trustee will be able to make an assessment of the bankrupt's income having regard to income likely to be derived by a person engaged in similar activities, under an industrial award or an arm's length contract of employment." (Hansard, Senate, 14 November, 1991, page 3129, Senator McMullan, Parliamentary Secretary to the Treasurer)

1. It seems to me that the Second Reading Speech does no more than confirm the plain meaning of s. 139Y(1)(b). That is that the remuneration must be that which it is reasonable to expect would be paid to a person engaged in similar employment, work or activities to those of the bankrupt. What is reasonable can only be assessed by reference to an industrial award or agreement in the case of s. 139Y(1)(b)(i) and to an arm's length contract of employment under s. 139Y(1)(b)(ii).

1. Returning to Mr Piccolo's case, I have already found that he had responsibility for PLA before his bankruptcy and was the controlling mind of PLA after his bankruptcy. Although the manner in which his role in PLA might have been perceived by an outsider to have changed, in fact it did not. On the view I have taken of s. 139Y(1)(b)(ii) that, however, does not lead to the conclusion that the remuneration he received from PLA before his bankruptcy should necessarily be taken to be the remuneration he received from it after his bankruptcy.  That requires a consideration of the manner in which he received his remuneration before the bankruptcy and the requirement that what amounts to reasonable remuneration must be assessed on the basis of an arm's length contract between Mr Piccolo and the person for whom the work, employment or activities were carried out.

1. Before the bankruptcy, I find that Mr Piccolo received a salary of approximately $35,000 per year from PLA together with a car allowance.  The amount of the car allowance varied from year to year and varied in amount for the year ending 30 June, 1996 between his income tax return and his Statement of Affairs.  Adopting a roughly mean figure, I find that his car allowance was $30,000 per annum prior to his bankruptcy. 

1. At the same time, he had drawings paid through PLA.  They varied in amount but were substantial.  Mr Galvin submits that the reasonable remuneration of a person who is engaged in employment, work or activities similar to those in which I have found Mr Piccolo to be engaged should take into account those drawings.  That submission requires me to consider how Mr Piccolo came to receive those drawings.

1. Those drawings were recorded in a loan account held in his name by PIC Pty Ltd as trustee for the Family Trust.  In view of the fact that there is no evidence of any agreement that he repay the moneys in his loan account and no intention that he will ever pay them or that payment will ever be required, I find that the moneys in that loan account represent moneys paid to him for his own use and benefit absolutely.  Why did PIC Pty Ltd pay those moneys to him?  I find that it did so as he was a Specified Beneficiary, and so a General Beneficiary, of the Family Trust.  That is a discretionary trust and it may apply the funds for any charitable purpose or for any one or more of the General Beneficiaries as it thinks fit.  Mr Piccolo, therefore, does not have any right to a distribution from that trust from year to year.

1. Whether or not Mr Piccolo had an expectation is another matter.  There is no evidence as to the directors or shareholders of PIC Pty Ltd and so no evidence as to whether he, or he and his wife, were the controlling minds in making the distributions.  Whether they were or not does not make any difference to the fact that he received those funds as a beneficiary of the trust.  He did not receive them by virtue of his being an employee of PLA or in some form of contractual relationship with PLA.  He did not receive them as a director of PLA.  The moneys paid through PLA's accounts and ultimately reflected in the loan account of PIC Pty Ltd as trustee for the Family Trust were moneys that were generated by the efforts of PLA and its staff.  They were not generated solely by the efforts of Mr Piccolo for other agents were listing and selling property and revenue was gained from PLA's property management interests. 

1. I am required by s. 139Y(1)(b)(ii) to consider the remuneration of a person in Mr Piccolo's situation but where there is no relationship or other connection between him or her and the person for whom the employment, work or activities are carried out.  In finding that he is the controlling mind of PLA, I have already found that there is a relationship or connection between Mr Piccolo and PLA.  In that capacity, he directs the moneys of PLA to PIC Pty Ltd.  It is PIC Pty Ltd that pays him the moneys as trustee. 

1. If a person were undertaking Mr Piccolo's duties in a similar business, I am not satisfied that he or she would be receiving the remuneration Mr Piccolo received prior to his bankruptcy.  He receives the drawings through PLA's accounts because he is not in an arm's length relationship with PLA.  If he were at arm's length, he would be in the position of a manager of PLA.  The remuneration of a manager is somewhat different.  Mr Clements' evidence was that it was in the order of $55,000.  He or she is in a different position from a salesperson, whose remuneration could generally vary from $50,000 to $150,000, as he or she would not generally be paid by commission.  His or her focus is on managing rather than on listing and selling property. 

1. Mr Piccolo is in the position of a manager without the day to day functions of a manager for those are undertaken by Mrs Romagnano, who is paid $60,000.  Taking her role into account, I am satisfied that the remuneration that a person engaged in undertaking employment, work or activities similar to that of Mr Piccolo and at arm's length from the employer would be $35,000 per annum.

Has an amount of money been received by a person other than Mr Piccolo as a result of work he has done or services he has provided?

1. I am satisfied that, since Mr Piccolo's bankruptcy, Mrs Piccolo has received moneys from PIC Pty Ltd as trustee for the Family Trust.  After the hearing had concluded, I asked the parties to consider whether Mrs Piccolo had received those moneys as a result of work done, or services performed by, Mr Piccolo so that those moneys come within the ambit of s. 139L(a)(vii) of the definition of "income".

1. When s. 139L was considered by Senior Member Beddoe in Re Stevenson and Inspector-General in Bankruptcy (1996) 45 ALD 775 it defined "income" to mean any amount derived by the bankrupt that is income according to the ordinary usages and concepts and included certain amounts that it went on to specify.  Senior Member Beddoe found that the form of the definition meant that any of the specified amounts had to meet the criterion that they had been "derived by the bankrupt" (page 781). 

1. Section 139L was repealed and substituted by the Amendment Act. A later amendment by the Retirement Savings Accounts (Consequential Amendments) Act 1997 is not relevant.  The new s. 139L came into effect on 16 December, 1996 and so after the date of Mr Piccolo's bankruptcy but during CAP 1 and after the Official Trustee had issued a notice of assessment.  Section 139L was in effect when the notices of assessment or fresh notices of assessment were issued in relation to CAPs 2, 3 and 4. There is nothing in the Amendment Act or in the context of the Act that leads to the conclusion that s. 139L as substituted by the Amendment Act should not apply in this case.

1. What is meant by the words "as a result of" in that provision?  I have looked first to the dictionary definitions of "result".  In the Macquarie Dictionary "result" is defined as:

"1. that which results; the outcome, consequence, or effect ... 3. to spring, arise, or proceed as a consequence from actions, circumstances, premises, etc.; be the outcome..."

The Shorter Oxford English Dictionary defines "result" to mean:

"1. To rise as a consequence, effect or conclusion from some action, process, etc.; to end or conclude in a specified manner."

1. The meaning of the phrase "as a result of" was considered by Hayne J in the Australian Securities Commission v Kavanagh and Others (1993) 11 ACSR 148 (Hayne J). The Australian Securities Commission commenced proceedings pursuant to s. 542 of the Companies (Vic) Code against the former directors and auditor of the company seeking a declaration that each of the respondents was guilty of negligence, default, breach of trust or breach of duty in relation to the company and that the company suffered loss and damage of $14,994,560.  His Honour at page 153 stated:

"Before an order can made under s 542 for payment of the amount of loss and damage, the section requires the court to be satisfied that a person is guilty of  wrongdoing of the kind described and that `the corporation has suffered or is likely to suffer loss or damage as a result of' that wrongdoing. I was told that there is no reported case which deals directly with what 'as a result of' means in s 542 and in that sense the precise nature of the causal link that must be established under the section awaits judicial determination.

However as the High Court said in March v E & MH Stramare Pty Ltd (1991) 171 CLR 506; 99 ALR 423 in relation to the tort of negligence, causation is essentially a question of fact to be answered by reference to common sense and experience and one into which considerations of policy and value judgment necessarily enter. There seems no reason to think that it is not at least arguable that similar considerations should apply in considering the nature of the causal link prescribed in s 542. Again, it may be accepted that it would follow from the adoption of such an approach that the `but for' or `sine qua non' test would not be a definitive test of causation. However, what is clear is that the inquiry would in large measure be a factual inquiry."

1. The meaning of the phrase "results from" in s. 9 of the Workers' Compensation Act 1926 was discussed by Moffit J sitting as President of the New South Wales Court of Appeal in Pickersgill v Freightbases Pty Ltd [1983] 3 NSWLR 117 (Moffit P, Samuels and Priestley JJA). His Honour at page 118 comments:

"In order to apply to a case the word 'results from' in the phrase `incapacity for work (or death) results from the injury' (s9 (s8)), it serves no useful purpose to substitute some other words.  The words `results from', long used in workers compensation legislation here and elsewhere, must speak for themselves as the remarks of Windeyer J in Commonwealth v Butler (1958) 102 CLR 465, at 479, 480, demonstrate.

It is somewhat easier, however, to say some of the things that the words do not mean.  Thus they do not mean simply `is caused by' or `is causally related to', although considerations of causation are obviously involved in the determination of whether an incapacity resulted from a particular injury.  The words `results from' are not appropriate to be applied to an injury which gives rise to a bodily condition which merely predisposes the worker or makes him more vulnerable to later injury.  The phrase imports some elements of proximity in the causative links between injury and incapacity.  It imports some element of precipitation.  In the factual field the necessary proximity can or can normally be expected to be temporal."

1. It is clear from the ordinary meaning of the word "result" and from the cases that the words "as a result of" carry with them elements of consequence and precipitation.  Turning to s. 139L(a)(vii), if the moneys were received by Mrs Piccolo as a result of work done, or services performed, by Mr Piccolo, they must be received as a consequence of that work or those services. Unlike s. 139Y(1)(b)(ii), there is no requirement in s. 139L(a)(vii) that the work done or services performed be done or performed for any identified person. 

1. What are "services" referred to in s. 139L(a)(vii)?  The ordinary meaning of that word was considered in IW v City of Perth and Others (1997) 191 CLR 1 (Brennan CJ, Dawson, Gaudron, McHugh and Gummow JJ, Toohey and Kirby JJ dissenting) in the context of the Equal Opportunity Act 1984 (WA). Gummow J canvassed the breadth of meanings given to the word:

"The term 'service' and its variants are of wide and varied meaning.  One speaks of the duties or work of a public servant, being a person serving the state or the community in a particular capacity.  Service may also be rendered to an individual by conduct tending to the welfare or advantage of that person.
…
In Gould v Yukon Order of Pioneers ([1996] 1 SCR 571; (1996) 133 DLR (4th) 449), the Supreme Court of Canada construed legislation which prohibited discrimination 'when offering or providing services, goods, or facilities to the public' (Human Rights Act, RSY 1986, c 11 (Supp) s 8(a)). L'Heureux-Dubé J, in the course of dealing with the question of statutory construction said: (Gould [1996] 1 SCR 571 at 639; (1996) 133 DLR (4th) 449 at 498 …)

'Dictionary entries, while far from conclusive, may be of some assistance in this regard: the various commonly understood meanings for the words chosen by the legislature can be a starting point for the interpretative analysis. For example, the Concise Oxford Dictionary (8th ed, 1990) defines a "service" to include assistance or a benefit given to someone, or the act of helping or doing work for another or for a community. Le Nouveau Petit Robert (1993) provides a slightly different definition for "service", which encompasses economic activities, other than the supply of tangible property, as well as functions having a "common or public" utility. These definitions suggest that the expression "providing services" has a broad meaning which encompasses activities in which a benefit other than a good is conferred on, or effort expended on behalf of another person or a community.'" (pages 41-42)

1. The word "services" has also been considered in the context of the Income Tax Assessment Act 1936 and in the particular context of whether amounts expended by a franchisor in providing holidays for its franchisees who achieved certain quotas were in respect of "any employment of or services rendered by" those franchisees within the meaning of s. 26(e).  Jenkinson J took the view in Federal Commissioner of Taxation v Cooke and Sherden (1978) 23 ALR 229 that:

"The words 'any employment of or services rendered by him', evoke by their collocation the twin concepts of contracts of service and for services. (In another context the expression 'services rendered' was thought to suggest the work of a servant: Associated Newspapers Ltd v Grinston (1949) 66 WN (NSW) 211 at 212.) No doubt it is not essential that there be a contractual origin of the obligation in discharge of which 'services' within the contemplation of s 26(e) are rendered. (cf Commonwealth v Quince (1944) 68 CLR 227). Nor is obligation of any kind essential. Services may be rendered gratuitously, in hope of gratuitous reward for them. But where work is done in performance of a contract it is essential, in my opinion, that the work be done as the consideration for reward offered in exchange for the work, if the work is to answer the description expressed by the words 'services rendered' in that sub-section. And I think that to be so, notwithstanding that what is brought into assessable income by s 26(e) may be allowed given or granted by somebody other than him who has offered and provided the reward in exchange for the work (cf FC of T v Dixon (1952) 86 CLR 540 at 556)." (page 240)

Jenkinson J went on to find that the arrangement related to the sale of goods and not to the provision of services.  The holiday was not capable of being converted into money and, even though its worth could be expressed in terms of money, it could not be regarded as income, An appeal to the Full Court from the judgement of his Honour was dismissed (Federal Commissioner of Taxation v Cooke and Sherden (1980) 10 ATR 696 (Brennan, Deane and Toohey JJ).

1. Returning to s. 139L(a)(vii), the context is not that of taxation but of bankruptcy. It is not focused upon moneys or consideration received from employment or services rendered but upon that received as a result of work done or services performed. There is a collocation of work and services but not in any framework that suggests a contract, however informal, of employment or as an independent contractor of some sort. In that it can be contrasted with s. 139Y(1)(b)(ii) where a different focus is adopted in a different context.  There is no suggestion in s. 139L that s. 139L(a)(vii) it is to be in any way read down by the ordinary meaning of "income".  Indeed, it expressly states that the moneys or consideration are income in relation to a bankrupt regardless of whether or not they come within the ordinary concepts of income.  Taking these matters into account, it seems to me that the work and the "services" to which s. 139L(a)(vii) refers extend to include conduct tending to the welfare or advantage of another or helping or benefiting another. 

1. I am satisfied that the "work" or "services" performed by Mr Piccolo are those he has performed as the controlling mind of PLA.  They have tended to help or benefit PLA.  In that capacity, he has directed moneys from PLA to PIC Pty Ltd.  There is no evidence that PIC Pty Ltd obtains moneys from any sources other than PLA.  Certainly, the Family Trust is a discretionary trust and there is no guarantee that PIC Pty Ltd will direct that a payment be made to Mrs Piccolo rather than to a charity.  Even so, on the occasions on which it does, it does so as a result of Mr Piccolo's work or services in directing PLA's funds to it.  Therefore, without his work or services, Mrs Piccolo could not have been the beneficiary of PIC Pty Ltd's discretionary act in relation the Family Trust.  Mrs Piccolo received that money as a result of work done or performed by Mr Piccolo and it must be regarded as his income pursuant to s. 139L(a)(vii).

Motor vehicles

1. On the basis of the letter of employment dated 1 June, 1996 and on the evidence of Mr Piccolo, I find that he was given the use of a Mercedes Benz 300E and that the use was unrestricted. That was so even though he purported to transfer the motor vehicle to PLA on 1 May, 1996. I also find on the basis of his evidence and of the record, in the name of Mr Piccolo, of the payments to AGC Limited for a lease, that PLA made lease payments to AGC Limited. PLA made payments of both principal and interest over a period of a little more than five years from 12 August, 1992 to 12 October, 1997. In view of the fact that PLA had agreed to Mr Piccolo's using the Mercedes Benz 300E, I have concluded that those lease payments made by PLA were made in respect of that motor vehicle. It follows that the use of the Mercedes Benz 300E was a benefit within the meaning of the FBTA Act and, more particularly, a car benefit within the meaning of s. 7(1) of that legislation. 

1. It follows that the value of that benefit is regarded as income for the purposes of the Act. That value is calculated according to the FBTA Act as modified by the Regulations. That follows from the findings I have made earlier in these reasons. They were that, after his bankruptcy, Mr Piccolo continued to direct the manner in which Mrs Romagnano carried out her responsibilities and continued to be the controlling mind of PLA. On the basis of that finding, I further found that Mr Piccolo exercised effective control over PLA. He did not do so overtly as the person designated as the officer in effective control of PLA but he did so by directing Mrs Romagnano's activities whether directly or indirectly. In view of that finding, the effect of r. 6.12(3) is that the value of the Mercedes Benz 300E must be assessed according to the FBTA Act as modified by the Regulations. This was the approach adopted by the Inspector General in relation to CAP 1 in his decision dated 23 December, 1998.

1. As to the Mercedes Benz 500S, I find that it was purchased by Mrs Piccolo in approximately September, 1998 during CAP 3. She continued to own it during CAP 4. I accept that Mr Healey saw Mr Piccolo driving that vehicle on several occasions. Despite that and in the absence of further evidence showing his use of the motor vehicle, I do not find that it was available to Mr Piccolo for his private use such that it was a car benefit within the meaning of s. 7(1) of the FBTA Act. It follows that I do not consider that it comes within s. 139L(a)(v) of the Act as income.

1. For the reasons I have given, I:

1.set aside each of the decisions of the respondent dated 4 September, 1999 to issue contribution assessment notices in relation to the contribution assessment periods:

(1)9 May, 1996 to 8 May, 1997 ("CAP 1");

(2)9 May, 1997 to 8 May, 1998 ("CAP 2");

(3)9 May, 1998 to 8 May, 1999 ("CAP 3"); and

(4)9 May, 1999 to 8 May, 2000 ("CAP 4");

2.substitute for the decision in relation to CAP 2 a decision that a fresh contribution assessment notice may not be issued; and

3.remit each of the decisions in relation to CAP 1, CAP 3 and CAP 4 to the respondent with directions that he:

(1)calculate the applicant's contribution on the basis that:

(a)the monetary amount that the applicant received as reasonable remuneration from his employment with Poole Levy and Appel Pty Ltd in each of the contribution assessment periods was $35,000 per annum;

(b)any moneys paid to the applicant's wife from PIC Pty Ltd as trustee for the J & S Piccolo Family Trust during each of the contribution assessment periods (be it paid directly or through some other account such as that of Poole Levy and Appel Pty Ltd) is income in relation to the applicant;

(c)the value of the Mercedes Benz 300E is to be assessed according to the provisions of the Fringe Benefits Tax Assessment Act 1986 as modified by the Bankruptcy Act 1966 and the Bankruptcy Regulations; and;

(d)the Mercedes Benz 500S is not to be taken into account in assessing the applicant's contribution; and

(2)issue a contribution assessment notice or fresh contribution assessment notices, as the case may be, in relation to each period.

I certify that the   preceding paragraphs are a true copy of the reasons for the decision herein of Miss S A Forgie (Deputy President)

Signed:          ........................................
  A R Horne     Associate

Dates of Hearing  30 and 31 October, 20 December, 2000
Date of Decision   2 July, 2001
Counsel for the Applicant             Mr Tsalanides
Solicitor for the Applicant            Best Hooper
Counsel for the Respondent         Mr M J Galvin
Solicitor for the Respondent         Cannizzo Lau & Associates