Re Gray, R.E. v Deputy Commissioner of Taxation, Ex Parte

Re: ROBERT EDWARD GRAY
Ex Parte: THE DEPUTY COMMISSIONER OF TAXATION
No. P668 of 1988
FED No. 343
Bankruptcy
20 ATR 1017

COURT

IN THE FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
BANKRUPTCY DISTRICT OF THE STATE OF WESTERN AUSTRALIA
Lee J.(1)

CATCHWORDS

Bankruptcy - whether petition presented within 6 months of act of bankruptcy - desirability of copy of petition served on debtor showing date of presentation on its face - whether "other sufficient cause" for declining to make sequestration order - debtor had no other creditors and no assets to pay creditor - sequestration order would cause cancellation of debtor's registration as tax agent - relevance of debtor's application to Taxation Relief Board - rejection by Board of previous application by debtor reduced significance of current application - matter of public interest in investigating why a qualified accountant practising as a tax agent regularly failed to pay his income tax assessments.

Bankruptcy Act 1966, para.52(2)(b)

Bankruptcy Rules

Income Tax Assessment Act 1936, ss.264 and 265

Ahern v. Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137

Re Field (1977) 3 WLR 937

McGuire v. Deputy Federal Commissioner of Taxation (1988) 88 ATC 4990

Re Otway (1895) 1 QB 812

Purden Pty. Ltd. v. Registrar of Bankruptcy (1982) 43 ALR 512

HEARING

PERTH

#DATE 30:6:1989

Counsel for the Applicant: Mr M.J. Buss

Solicitor for the Applicant: Australian Government Solicitor

Mr R.E. Gray appeared in person

ORDER

The debtor's estate be sequestrated.

Note: Settlement and entry of orders is dealt with in Rule 124 of the Bankruptcy Rules.

JUDGE1

By petition under the Bankruptcy Act 1966 ("the Act") the creditor seeks a sequestration order against the estate of the debtor.

The petition alleges that the debtor committed an act of bankruptcy on 4 March 1988. The petition bore a stamp showing it had been filed in the Bankruptcy Registry on 13 September 1988. The original petition also bore a stamp of the Federal Court of Australia showing that the petition had been presented on 2 September 1988.
On the hearing of the petition the petitioning creditor adduced evidence to show that the petition had been presented to, and received by, a clerk for the Registrar in Bankruptcy on 2 September 1988 who had also issued a receipt on that day for the fee payable on the filing of the petition. Accordingly, I am satisfied that the petition was presented within six months of the act of bankruptcy relied upon in the petition. (See Purden Pty. Ltd. v. Registrar of Bankruptcy (1982) 43 ALR 512.)
In Purden the Full Court noted that it was desirable that the date of presentation be stamped or otherwise marked on the petition. The Bankruptcy Rules make no provision for such a stamp. The Full Court noted that it was vital that the date of presentation of the petition be ascertained with certainty (p 517) and no doubt the Court had in mind that the official copy of the petition served on the debtor should bear a stamp or mark of the Bankruptcy Registry showing the date of presentation, a course not followed in the instant case.
The debtor filed a notice of opposition to the petition. The notice set out various grounds which amounted to a contention by the debtor that there was other sufficient cause for a sequestration order not to be made and for the petition to be dismissed pursuant to para.52(2)(b) of the Act. In the notice the debtor stated that he had no other creditors, had no assets to meet the debt due to the petitioning creditor and that the sequestration order would result in the cancellation of his registration as a tax agent and loss of his means of livelihood.
Upon the hearing of the petition and consideration of the affidavits filed on behalf of the petitioning creditor in support of the petition, I was satisfied that all matters required to be proved to grant a sequestration order had been proved by the petitioning creditor and there was no issue that the debtor was unable to pay the debt due to the petitioner.
The real issue on the hearing of the petition was whether the making of a sequestration order would be both futile and, in the circumstances, unnecessarily oppressive on the debtor.
The debtor is fifty-nine years of age. He carries on business as a self-employed accountant and in particular earns income from practice as a registered tax agent under the Income Tax Assessment Act 1936.
Until 1977 the debtor conducted an accountancy practice as a sole practitioner at Geraldton in the State of Western Australia. In 1977 the trustee of the Gray Family Trust acquired the debtor's business and the debtor was employed by the trustee to carry on the business acquired by the trustee. In 1983 proceedings were commenced between the debtor and his wife in the Family Court of Western Australia as a result of which an order was made by that Court in March 1985 settling the property interests of the debtor and his wife.
In December 1985 the Gray Family Trust sold the accountancy business and the proceeds of sale were disbursed as a capital distribution of the Trust to the debtor's son who used the moneys to establish a computer business.
The debtor has no realizable assets other than the client list he retains for the conduct of his business as a tax agent. Those clients appear to be a small group which wishes to retain the services of the debtor. The prospect of realizing any goodwill by the sale of such a list must be regarded as minimal and unlikely to be worth the cost of administering the debtor's estate. The trustee would have nothing to sell once the debtor was made a bankrupt.
The debtor is indebted to the petitioning creditor in the sum of $89,588.41 expressed in a judgment obtained by the creditor against the debtor in a sum of $47,412.83 on 13 November 1987 and the sum of $42,175.58 due for income tax for the financial years ending 30 June 1978, 1983, 1984 and 1986 and late payment penalties for those years and for the financial years ending 30 June 1979 and 1980.
An attempted execution on the judgment brought no return to the petitioning creditor.
The petitioner has not raised any grounds to apprehend that any property is the subject of a voidable settlement, disposition or preference recoverable in a bankruptcy.
The debtor has made application to the Board ("Taxation Relief Board") established under s.265 of the Income Tax Assessment Act 1936 seeking release from the liability to the petitioning creditor on the ground that exaction of the full amount of tax will cause him serious hardship. The application to the Board was lodged on 26 January 1989. It may be several years before the application is heard.
The debtor made an earlier application to the Board for release from his liability to the petitioner on 2 April 1984. The application was considered and rejected on 23 February 1987.
It is apparent that it is most unlikely that the administration of the debtor's estate in bankruptcy will realize any assets or make any real reduction in the debt due to the petitioner and to that extent there may be some reason to question the utility of making a sequestration order. (See Re Otway (1895) 1 QB 812 and Re Field (1977) 3 WLR 937.)
Furthermore, a sequestration order will require the cancellation of the debtor's registration as a tax agent and the cessation of his present means of livelihood. Although the debtor is an accountant by profession, his prospect of obtaining some form of employment in his calling cannot be considered to be bright when it is considered that the debtor is nearly sixty years of age. In all probability the debtor will become a recipient of social security payments. The time and costs of the Official Receiver will be expended for little likelihood of return and in many respects the community will see little benefit from a sequestration order in this matter.
If the debtor's application under s.265 of the Income Tax Assessment Act 1936 had been the debtor's first application to the Board, the combination of that application and the foregoing facts may have been sufficient grounds under sub-s.52(2) of the Act to decline to make a sequestration order in this matter. (See Ahern v. Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 at p 148 and McGuire v. Deputy Federal Commissioner of Taxation (1988) 88 ATC 4990 at p 4994.)
In view of the fact that the petitioning creditor is the sole creditor, any prospect of the release of that debt would be most germane to the making of a sequestration order. However, it is to be borne in mind that the Taxation Relief Board has previously considered whether the debtor would be likely to suffer serious hardship if required to pay the taxation debt and has determined that the debt not be released. In those circumstances it would not be appropriate to treat the debtor's renewed application to the Board as the equivalent of an original application for relief possessing some unascertained prospect of success.
Having set out the matters that may constitute grounds for the Court to decline to make a sequestration order, it is necessary to assess whether those grounds are affected by any other considerations.
One such consideration is the matter of public interest in determining what has been going wrong with the debtor's affairs over such a lengthy period of time. Although the debtor is not a trader trading unprofitably at the expense of various creditors, the particular conduct of the debtor in regularly failing to discharge his liability to pay assessed income tax becomes a matter of public interest, if not concern, when the debtor is a qualified accountant practising as a tax agent registered under the Income Tax Assessment Act 1936 as a fit and proper person to advise others as to their taxation affairs.
The matter of non-provision for income tax liabilities requires some inquiry and the provisions of s.264 of the Income Tax Assessment Act 1936 would not be adequate for that purpose.
If those circumstances had not been present this may have been a case in which the Court may have considered declining to make a sequestration order, but in those circumstances the grant of a sequestration order is the only appropriate course despite the prospect of cost and lack of return and despite the fact that some hardship may ensue.
Accordingly, I will order that the debtor's estate be sequestrated.

[1989] FCA 343

30 JUNE 1989