Re Lance, Debra Kaye Ex Parte Nilant, Charles Philippe Louis v Lance, Debra Kaye
[1996] FCA 1102
•16 DECEMBER 1996
CATCHWORDS
BANKRUPTCY - arrangements with creditors without sequestration - control of debtor's property - whether application for release should be granted
BANKRUPTCY - proceedings in connection with sequestration - failure to present debtor's petition after resolution of creditors - whether sequestration order appropriate - debtor disputing partnership with spouse - whether debtor liable for debts in statement of affairs and otherwise
Bankruptcy Act 1966, s188, s188(2)(c)(ii), s189(1), s189(1)(d), s195(4), s208(b), s221(1)(b)
Bills of Exchange Act (Cth) 1909, s25
Partnership Act (WA) 1895, s8(3)
Sales Tax Assessment Act (6) 1930, subs10(2A),
Sales Tax Assessment Act 1992 (Cth), s116
Re Baxter; Ex parte The Official Receiver v Baxter (1986) 10 FCR 398
Re Burlock; Burlock v Commissioner of Taxation & Anor (1994) 49 FCR 522
Jolley v Federal Commissioner of Taxation (1989) 86 ALR 297
Laurence v Mulroney (1987) 15 FCR 268
cf Robert Coldstream Partnership v Federal Commissioner of Taxation (1943) 68 CLR 391
RE DEBRA KAYE LANCE; EX PARTE CHARLES PHILIPPE LOUIS NILANT and DEBRA KAYE LANCE
NO WX 42 OF 1994
R D NICHOLSON J
PERTH
16 DECEMBER 1996
IN THE FEDERAL COURT OF AUSTRALIA )
WESTERN AUSTRALIA DISTRICT REGISTRY )
GENERAL DIVISION ) NO WX 42 OF 1994
B E T W E E N:
RE DEBRA KAYE LANCE
EX PARTECHARLES PHILIPPE LOUIS NILANT
Applicant
and
DEBRA KAYE LANCE
Respondent
MINUTE OF ORDER
JUDGE MAKING ORDER: R D NICHOLSON J
DATE OF ORDER: 16 DECEMBER 1996
WHERE MADE: PERTH
THE COURT ORDERS THAT:
A Sequestration Order be made against the estate of Debra Kaye Lance of 3 Keys Court, Leeming, Western Australia, pursuant to s221(1)(b) of the Bankruptcy Act 1966.
The Applicant's costs be taxed and paid out of the estate of Debra Kaye Lance in accordance with the Bankruptcy Act 1966.
Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
WESTERN AUSTRALIA DISTRICT REGISTRY )
GENERAL DIVISION ) NO WX 42 OF 1994
B E T W E E N:
RE DEBRA KAYE LANCE
EX PARTECHARLES PHILIPPE LOUIS NILANT
Applicant
and
DEBRA KAYE LANCE
Respondent
CORAM:R D NICHOLSON J
DATE:16 DECEMBER 1996
PLACE:PERTH
REASONS FOR JUDGMENT
The applicant seeks a sequestration order pursuant to s221(1)(b) of the Bankruptcy Act 1966 ("the Act"). The applicant was appointed controlling trustee of the estate of the respondent under an authority made pursuant to s188 in PtX of the Act signed by her and dated 16 August 1994 ("the authority").
A meeting of the creditors of the respondent was held on 8 September 1994. It was subsequently adjourned to 20 October 1994. The proposals put to the creditors pursuant to PtX of the Act at that meeting were rejected and a special resolution was passed that the respondent present her debtor's petition in bankruptcy within seven days. The respondent has not presented such a petition. Section 221(1)(b) authorises the court, if it thinks fit, to make a sequestration order where there has been a failure to present such petition within the time required by a special resolution to that effect.
Respondent's application for release
At the hearing the respondent orally applied for her property to be released under s208(b) of the Act from control of the applicant. Section 208(b) requires the Court to be satisfied there are "special circumstances" which justify release from the controlling trustee. If granted, the effect would be to bring an end to the authority of the applicant: s189(1)(d).
The respondent deposes she was mislead by the applicant into signing the authority. She says she was not told the controlling trustee would remain in control of her assets until released by the Court or discharged by a meeting of creditors or until she was declared bankrupt: cf s189(1). It is also deposed by the respondent that she had not originally intended to enter the PtX arrangement but the trustee and accountant had convinced her and her husband to both enter into the arrangement in order that they would both be protected. Her evidence was she did not know her assets would remain under the control of the applicant if the result of the creditors meeting was unsuccessful. In further evidence she deposed her purpose for seeking to enter into a PtX arrangement was so that when her husband entered a PtX, "know (sic) one could go me after it was accepted". I take that to mean she had intended to protect herself because she may also be liable for some of her husband's debts. The respondent relies on these asserted facts as a basis for "special circumstances" justifying the release of her property from the controlling trustee.
The authority in its terms authorised the applicant as a registered trustee to call a meeting of creditors "and take over control of the respondent's property". A statement under s188(2)(c)(ii) executed by the respondent also on 16 August 1994, which contained the proposal to the creditors by the respondent and her husband, expressly stated their intention to execute the authority to the registered trustee "to take control of our joint and separate property..." In the face of these clear written statements on documents executed by the respondent the absence of oral repetition of them to her by the applicant did not create a situation in which she could have been mislead. The advice of the effect of the authority was fully before her.
The respondent was also given a document by the applicant which was headed "Alternative 2: Arrangements in Terms of Part X of the Bankruptcy Act". Her evidence is this was given to her by the applicant as part of an "information pack" designed to inform her of the process she was entering into. The last line of that document states, "if your proposal is not successful you should declare yourself bankrupt".
Section 189(1) of the Act provides:
"Where a debtor has given an effective authority to a registered trustee under section 188, the property of the debtor becomes subject to control under this Division and continues to be so subject until-
(a)the creditors resolve at a meeting called under this Part that the debtor's property be no longer subject to control under this Division;
(b)a deed of assignment or a deed of arrangement is executed by the debtor and the trustee of the deed in pursuant of a special resolution of his creditors under this Division;
(c)the creditors accept a composition under this Division;
(d)the Court, under section 208, releases the debtor's property from control under this Division;
(e)the debtor becomes bankrupt; or
(f)the debtor dies,
whichever first happens."
Section 189 does not mandate that the respondent should declare herself bankrupt but, given the absence of any occurrence satisfying (a), (b) or (c), the option of becoming bankrupt remained the only other alternative feasible for the respondent if her proposal did not succeed. Her attention was therefore properly directed to bankruptcy as one of the means to bring an end to control of her property.
The respondent did not attend the meeting of creditors on 20 October 1996 due to an illness. This does not affect the validity of any of the resolutions reached by that meeting: s195(4). No special circumstance therefore arises from the fact of her non‑attendance.
In Laurence v Mulroney (1987) 15 FCR 268 it was held the power of a court to release property from control of the trustee must be exercised in accordance with the purposes for which the facility for a controlling trustee was envisaged by the Clyne Committee. In particular, Burchett J at 270-271 stated the purpose of a controlling trustee was to prevent the dissipation of assets or to prevent the incurring of more losses by the estate. In that case it was held, although the debtor was basically insolvent, the debts which had been incurred were not of a current nature and were not continuing. Further, there was no threat of dissipation of assets. Therefore, the debtor in that case was released. It should be noted the debtor in that case had intended only to enter the PtX arrangement in order to avoid proceedings against him in a Supreme Court.
In this case the respondent has entered the PtX arrangement in order to avoid having her assets seized and sold as a result of her husband's bankruptcy. From the minutes of the creditors' meeting it can be seen the respondent was not completely candid with her creditors. She had not properly disclosed all potential sources of funds which were available to her to satisfy her obligations. In my opinion, releasing the property of the respondent from the applicant's control would raise a real and serious risk of dissipation of assets. This is a different case to that in Laurence.
It is submitted for the applicant it would be futile to release the respondent's property because once the respondent is released her debtors will apply to place her in bankruptcy
in any event. For reasons which follow later, I accept that submission.
For these reasons I do not consider there are any "special circumstances" which would support a release of the respondent under s208(b).
Applicant's application for sequestration order
The respondents' statement of affairs dated 16 August 1994 shows a joint estate with her husband with joint assets of $500 and joint liabilities of $71,460 resulting in a deficiency of $70,960. The joint liabilities are shown as:
WA Salvage $920.00
R K Bauer$45,000.00
Commissioner of State Tax $25,540.00
__________
$71,460.00
__________
The WA Salvage debt was paid by the respondent on 15 December 1995 after the present proceedings were commenced. This debt is therefore no longer in issue.
In addition there is said to be a debt to the Australian Taxation Office ("ATO") for unpaid sales tax of $23,522.32 incurred with respect to the importation of vehicles.
The respondent disputes that she is insolvent. For the applicant it is said any of the debts can be relied on by the creditors to place the respondent in bankruptcy.
The approach which the applicant submits should be taken to his application is that followed in Re Burlock; Burlock v Commissioner of Taxation & Anor (1994) 49 FCR 522 at 531 where it was said by the Court (Black CJ, Sweeney and Ryan JJ):
". . . by signing an authority under s188 a debtor commits an act of bankruptcy and it was suggested that, by parity of reasoning, it is appropriate that, prima facie, the Court should proceed to make an order of sequestration unless some cause is shown to outweigh the considerations noted in [Rozenbes v Kronhill (1956) 95 CLR 407]."
It is necessary therefore to examine the respondent's contentions with respect to each of the debts.
R K Bauer Debt
The R K Bauer debt was incurred pursuant to a deed of charge dated 13 July 1992. It is deposed by a Mr Eastman a director of Air Phoenix Pty Ltd ("Air Phoenix"), that Air Phoenix took an assignment of the debt from R K Bauer on 7 June 1995. The respondent relies on an "Agreement to Reinstate and Transfer Shares in Azanda Pty Ltd" dated 31 January 1996 between her and Air Phoenix. The deed provides that if the respondent takes steps to have a defunct company by the name of Azanda Pty Ltd reinstated, Air Phoenix waives any right to prove in her bankruptcy.
However, the terms of the agreement are contingent. Although opportunity was provided to the respondent to file evidence of fulfilment of the conditions, there is no evidence the respondent has satisfied the conditions of the deed. The holder of the R K Bauer debt would still be entitled to prove in the bankruptcy of the respondent. It cannot be concluded from the evidence that the respondent is released from this debt.
The State Taxation Judgments
Two judgments were obtained on 8 July 1994 by the Commissioner of State Taxation against the respondent in the sum of $14,856.43 and $8,956.20. The judgments were in respect of cheques signed by the respondent but dishonoured. No notice of appeal has been filed or served in respect of those judgments.
The respondent deposed she does not recall receiving notice of the actions and had no notice of the interlocutory judgment summons. However, it is clear the initiating process in those matters were personally served on her and she filed Notices of Intention to Defend. In a letter to the Crown Solicitor's Office in 1994 the respondent acknowledged liability for the second debt.
The respondent says the judgments have been entered on an incorrect basis. Her evidence is that all she did was sign blank cheques and her husband subsequently made them payable to the Commissioner of State Taxation. This cannot assist the respondent. Firstly, by signing the cheques for the debts, even if they were the debts of her husband, the respondent assumed liability for any amount that is written on that cheque: Bills of Exchange Act (Cth) 1909, s25. Secondly, the judgments must be given full force and effect on their face and the Court cannot go behind them unless there is an allegation of impropriety: Re Baxter; Ex parte The Official Receiver v Baxter (1986) 10 FCR 398 at 401. In this case, there is no such allegation.
Sales Tax Debt
Around November 1990 an audit was conducted of the records of the partnership of the respondent and her husband. As a result of the audit an assessment under subs10(2A) of the Sales Tax Assessment Act (6) 1930 was issued on 1 October 1991 against her husband as a partner in PK & DK Lance for the sum of $18,886.07. The tax was due in respect of the stated value of tyres and motor vehicles imported and sold during the period 1 December 1987 to 30 November 1990 inclusive. The assessment was forwarded to the partnership under cover of letter dated 1 October 1991.
On 1 November 1991, the respondent's husband objected to the assessment. On 25 May 1992 the objection was considered and rejected. On 30 March 1993 as a result of further information from the respondent's husband, the amount of outstanding sales tax was reduced to $13,892.71 and the amount of additional tax reduced to $1,389.30. On 28 April 1993 the Australian Taxation Office wrote to the respondent's husband requesting payment of the amounts advised on 30 March 1993, plus additional tax for late payment of $4,446.86. All correspondence was addressed to the respondent's husband as a partner in "PK and DK Lance". At no time did the respondent's husband object to the description of the partnership.
The respondent disputes she was in partnership because she did not enter an express deed of partnership with her husband, has never been registered as a partner of the business name and has never signed the partnership income tax return. However, taxation returns for the years 30 June 1988‑1991 establish she and her husband drew partnership income and shared partnership expenses. The respondent and her husband held themselves out as being partners and declared partnership income or losses. In these circumstances, it is not open to her to deny the existence of partnership: see s8(3) of the Partnership Act (WA) 1895; cf Robert Coldstream Partnership v Federal Commissioner of Taxation (1943) 68 CLR 391; Jolley v Federal Commissioner of Taxation (1989) 86 ALR 297.
In the respondent's submissions it was said the sales tax debt had been objected to by her husband. However, her husband had objected on the basis he had been given advice that he would not be subject to tax by the Australian Taxation Office and not on the basis it was not incurred by a partnership.
In these circumstance the respondent cannot dispute that she was in partnership and liable for the partnership debts.
The applicant also relied on s116 of the Sales Tax Assessment Act 1992 (Cth) which provides a sales tax assessment is conclusive evidence the assessment was duly made and the amounts in it are correct. That conclusivity applies where there is no review or objection. Here both were requested. The assessment was varied. No fresh assessment was issued. There is no relevant conclusivity to the assessment to assist the applicant's case.
Conclusion
In my opinion any one of three categories of debt support the applicant's case. The respondent has failed to bring evidence she has sufficient assets or income to repay those debts. In addition, at the hearing the respondent accepted there was further indebtedness to a solicitor. The creditors would be put to significant financial expense and delay if they were required to start a bankruptcy proceeding against the respondent. In my opinion the application under s221(1)(b) for a sequestration order against the estate of the respondent should be granted.
I certify that this and the preceding 8 pages are a true copy of the Reasons for Judgment of his Honour Justice R D Nicholson.
Associate:
Date:16 December 1996
APPEARANCES
Counsel for the Applicant: Mr F Carles
Solicitors for the Applicant: Carles Solicitors
The Respondent appeared in person assisted by Mr PK Lance
Date of Hearing: 21 June 1996
Date of Judgment: 16 December 1996
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