Re: Bowen, Howard, J.E

[1987] FCA 347

.I J '

l/ 0

* c

NOT FOR DISTRIBUTION

IN-THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION BANKRUPTCY DISTRICT	)
OF THE STATE OF NEW SOUTH WALES	) NO. W. 48 Of 1985

. I

AUSTRALIAN THE AND CAPITAL )

r

- -, - . 4

TERRITORY

! I

- RE : HOWARD JOHN ERNEST BOWEN

Bankrupt

- ORDER

Judge Making Order: Gummow, J.

Where Made: 12 may 1907

Date of Order: 12 May 1907

The Court Orders that:

(1) The application for discharge from

bankruptcy be dismissed. -

i (2) The applicant costs the pay of the objecting

creditor.

Note: Settlement and entry of orders is dealt with in

Bankruptcy Rule -124.

I

I

I

l

1.

, . ' .S

,

IN THE FEDERAL COURT OF AUSTRALIA 1

1

GENERAL DIVISION BANKRUPTCY DISTRICT	1 ,
1

OF THE STATE OF NEW SOUTH WALES ) NO. W. 48 Of 1985

1 -

5 .   1

AND THE AUSTRALIAN	CAPITAL'	1 1
TERRITORY	1

- RE : HOWARD JOHN ERNEST BOWEN Bankrupt

CORAM:	Gummow, J.
DATE OF ORDER:	12 May 1987

REASONS FOR JUDGMENT

This is an application for discharge under section 150 of the

Bankruptcy Act by the bankrupt who became bankrupt on his own petition on 25 January 1985. It is opposed by the Commissioner

of Taxation. A report of the Official Receiver on behalf of

the Official Trustee in Bankruptcy dated 2 4 February 1987

discloses that three proofs of debt have been lodged against

the estate and admitted for a total of $99,700. They comprise

first, accountancy fees of $661; secondly an amount of

$56,126.78 which is owing to the Commonwealth in respect of

income tax for the years 1980 to 1984 and which is made up of

various integers to which the counsel for the bankrupt drew

2.

atgention; and thirdly, a sum of $42,912 owed to H.J.E. Bowen

Pty Limited which I shall compendiously describe as a family

company of the bankrupt. No dividend has been paid to

. .

creditors and there are presently sufficient funds to enable a -

dividend of 4 cents in the dollar to be paid. '

The bankrupt is a medical practitioner employed by the

aforementioned H.J.E. Bowen Pty Limited and presently receives

a weekly net wage of some $400. He is a married man aged 43

years with three children aged 8, 10 and 12 years. They are

partially dependant on him for support. Affidavit and oral

evidence was given as to the present financial situation of the

bankrupt and his wife. Counsel for the bankrupt conceded that

it was appropriate to have regard on this application to the

financial position of the bankrupt's wife and it appears that

in respect of the year ending 30 June 1986 Mrs Bowen returned a

taxable income of $29,859. This comprised amongst other

components a gross salary of $20,263.70 paid by the company

Highgate Gardens Pty Limited. Highgate Gardens Pty Limited appears to act as trustee of the Bowen family trust. H.J.E. Bowen Pty Limited was incorporated to take advantage of the approval by the Australian Medical Association of medical practitioners, to put it colloquially, incorporating their

practices. I refer to paragraph 2 of the bankrupt's affidavit

as sworn in these proceedings on 5 May 1987.

I .

, .-

3.

. The application is 'opposed by the Commissioner of

Taxation and evidence tendered today shows that the

indebtedness in respect of the income tax claims includes a . .

component of some $13,000 for what was described as primary tax

I -

in dispute and some $41;000 in respect of what was described as c

penalty tax. The applicant, since becoming bankrupt, has contributed the following amounts to his estate: first, in

I

I	1985, $300 was paid in monthly instalments of $50 each; in 1986 $1200 was paid in monthly instalments of $100 each; in 1987
continuing payments have been made of $100 per month. The
bankrupt obtains the weekly wage to which I have referred from his conduct of his profession as a medical practitioner in
I
Orange. He says in paragraph 16 of the affidavit to which I referred that he seeks a discharge for the following reasons:

(a)	The debt now owed to the Deputy Commissioner
of Taxation consists primarily of additional

I

tax for late payment which accrued in the

circumstances outlined above , which

circumstances were the result of advice from

his former accountants.

(b)	The majority of primary tax owing to the
Deputy Commissioner of Taxation was paid on

29 December 1983 and 13 June 1984.

i

I	i.
I

I . .-

4 .

. (c) Being bankrupt a medical practitioner,

particularly in a small country town like

Orange were many potential.patients and most

business contemporaries are aware of.. his

-

. - _ 4

bankruptcy, has caused a great deal of

psychological pressure and has inhibited the

growth of the practice.

(d)	The difficulties of carrying on practice as a medical practitioner while a bankrupt has
caused and is causing stress in his
marriage, in his family life, and has

adversely affected his health.

Counsel for the bankrupt developed those reasons in

his submissions. He says, and it appears not to be in

dispute, that the bankrupt in the years 1977 to 1983 relied on

the advice of his accountants as to certain income tax

minimisation schemes and that this led to the engagement by the bankrupt in certain arrangements which were, as to their

effect, disallowed by the Commissioner. Further, after the

minimisation arrangements had been shown to be ineffective

from the point of view of the Commissioner it appears that

subsequent offers or negotiations for compromise by the Commissioner were not accepted by the bankrupt, and that he

did so in reliance upon the advice tendered to him by his

accountants. It is submitted for the bankrupt that this is

5.

not. a case of deliberate concealment of assets or of

fraudulent evasion of responsibility.

. I

The entertainment of an application for discharge has

. .. l

been said to involve looking beyond the interests of the

applicant and the applicant's creditors and .to involve

consideration of the interests of the public and commercial

morality. It has also been said that a decision under section

150(9) is one in which the Court has a wide unfettered

discretion, Re Maher (1985) 61 ALR 592.

It is submitted for the bankrupt that it is not his

case that the amounts to which I have referred as having been

paid since the bankruptcy are the only feasible amounts that

could have been paid. It is said that, in view of the

circumstances as to his engagement in the tax minimisation

schemes, the applicant was delivered into his present position

essentially by acting upon the advice of others, and it is

said that whilst there is the primary tax of some $13,981 at

the heart of the case, the Court should treat somewhat

differently that component of the Commissionerrs debt which

represents the so called penalty tax payments.

In my opinion, taking into account all that has been

said on behalf of the applicant, a case for discharge has not

been made out. In particular, I should emphasise that even if

it were appropriate for the Court to have regard to the public

6.

in$erest as to the $13,981 representlng primary tax, and to

place somewhat	less importance, on the other component of the
Commissioner's	claim, it would nevertheless still be, in my

. I

opinion, not a case for a discharge.

r

. I

In my view, it is not compulsive of anyconclusion in

favour of discharge, that the applicant acted as he did upon

professional advice. The fact is that, at least, $13,981 is

owing in respect of the primary tax and that the applicant

does not make a case that the amounts he has paid were the

only feasible amounts that he could have paid. There has been

some discussion before me as to whether it would be

appropriate in this case to order a discharge but on

conditions involving, inter alia, the making of payments in

specified amounts by the taxpayer. However, having heard what

has been submitted by both the bankrupt and on behalf of the

Commissioner on this subject, I am satisfied that no effective

condition could be imposed which would satisfactorily and

realistically deal with the sum for primary tax, let alone for

the balance of the tax that is owing. Accordingly, the

application is dismissed. The applicant will pay the costs of

the objecting creditor.

1.

\

I certify that this and the six(6) preceding

pages are a true copy of the'Reasons for

Judgment of his Honour Mr Justice Gummow.

I Associate: .

Date : - -. 12 . May 1981 l

Counsel and Solicitor for

Mr S.G. Finch

Applicant:

instructed by

D.J. Ironside.

Counsel and Solicitors for

the Objecting Creditor:

Mr M.R. Aldridge

instructed by

The Australian

Government Solicitor

Mr Bluett appeared on behalf of

the Official Receiver's Office.

Date of Hearing:

12 May 1987

Date of Judgment:

12 may 1987

l

I