Re Nelson, Tania Ex Parte Nelson, Tania

[1995] FCA 1018

C A T C H W 0 R D S

BANKRUPTCY - application to Court by bankrupt to leave Australia - liability to pay contributions to trustee during contribution assessment period - extinguishment of liability by payment - applicability of s 139ZU Bankruptcy Act 1966.

Bankruptcy Act 1966 ss 82(1), 139J, 139K, 139P, 139Q, 139S, 139W and 139ZU.

Deputy Commissioner for Taxation v Moore Bank Pty Ltd [1987]
1 Qd R 414
Hall v Bonnet [1956] SASR 10
Re Tyndall (1977) 30 FLR 6

RE: TANIA NELSON (Bankrupt); EX PARTE: TANIA NELSON (Applicant)
No. QB 1973 of 1995

SPENDER J
BRISBANE
15 DECEMBER 1995

IN THE FEDERAL COURT OF AUSTRALIA      )
GENERAL DIVISION  )
   No. QB 1973 of 1995
BANKRUPTCY DISTRICT OF THE            )
STATE OF QUEENSLAND                   )

RE:TANIA NELSON

Bankrupt

EX PARTE:TANIA NELSON

Applicant

MINUTES OF ORDER

JUDGE MAKING ORDER:     Spender J

DATE OF ORDER:          15 December 1995

WHERE MADE:            Brisbane

THE COURT DECLARES THAT:

1. That the applicant is not liable to pay the trustee a contribution under s 139P(1) or s 139Q(1) of the Bankruptcy Act 1966 (as amended).

1. That the applicant is not a person to whom s 139ZU of the Bankruptcy Act 1966 (as amended) applies.

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

IN THE FEDERAL COURT OF AUSTRALIA      )
GENERAL DIVISION  )
   No. QB 1973 of 1995
BANKRUPTCY DISTRICT OF THE            )
STATE OF QUEENSLAND                   )

RE:TANIA NELSON

Bankrupt

EX PARTE:TANIA NELSON

Applicant

CORAM:    Spender J
DATE:     6 March 1996
PLACE:    Brisbane

REASONS FOR JUDGMENT

Tania Nelson, a bankrupt, applied under s 30 of the Bankruptcy Act 1966 ('the Act') for the following declarations:

1. That the applicant is not liable to pay the trustee a contribution under s 139P(1) or 139Q(1) of the Bankruptcy Act 1966 (as amended).

1. That the applicant is not a person to whom s 139ZU of the Bankruptcy Act 1966 (as amended) applies.

The first declaration borrows its wording from s 139ZU of the Act and has the effect of removing the applicant from the ambit of that section. The second declaration confirms that result.

On 15 December 1995 I made the declarations sought and indicated that I would deliver my reasons later. These are those reasons.

In about July 1993 the applicant was involved in a motor vehicle accident at a time when she was not insured for damage caused to the property of third parties.  Unable to pay the damages claim against her, the applicant presented a debtor's petition on 28 June 1995, which was accepted by the Registrar on that date.  That bankruptcy file was numbered 1484 of 1995.  Subsequently the applicant lodged a second debtor's petition on 1 August 1995 which was accepted by a Registrar on 18 August 1995.  That bankruptcy file was numbered 1973 of 1995. 

Prior to accepting the second debtor's petition, a letter was written by the Registrar in Bankruptcy on 11 August 1995 which said:

"I refer to the bankruptcy documents forwarded by you which were received in this office on 8 August 1995. 

I note from a search of the records held that you presented your own petition on 28 June 1995 and that comparison of the two sets of documents indicates that the only change to the most recent documents is in the sums owing to your creditors.  It is not necessary to file further documents because the amounts you included in the earlier statement of affairs were either overstated or understated. 

Please advise whether you wish to proceed with the filing of the most recent bankruptcy documents. "

The applicant replied by letter in the following terms:

"I have received your letter dated 11th August and I am writing to advise that I still wish to proceed with the filing of the most recent bankruptcy documents, as ITSA advised me to go bankrupt a second time. "

In a document filed on 22 September 1995 which is styled as an application to the court but which reads more as an affidavit, the applicant says:

"I went bankrupt the second time due to the fact that I was advised I had gone bankrupt too early - before judgment had been obtained against me by the insurance company. "

It was indicated by counsel for the applicant and by the representative of the Official Receiver who appeared before me, that at the time the first debtor's petition was presented, the applicant was exposed to claims for damages which were then unliquidated claims. Once those damages were liquidated by a judgment against the applicant, the second debtor's petition was presented and accepted. 

The true position seems not to have been of pressing importance to any of those appearing before the court. The liability to pay damages, which became liquidated subsequent to the presentation of the first debtor's petition, was provable in that bankruptcy pursuant to s 82(1) of the Act which provides:

"Subject to this Division, all debts and liabilities, present or future, certain or contingent, to which a bankrupt was subject at the date of the bankruptcy, or to which he may become subject before his discharge by reason of an obligation incurred before the date of the bankruptcy, are provable in his bankruptcy. "

The filing of the present application suggests that it has application in the latter bankruptcy. However the parties agree that it should have been made in the earlier bankruptcy in which an income contribution assessment has been made in accordance with Division 4B Part VI of the Act.

Section 139ZU of the Act provides:

"(1) A bankrupt who is liable to pay to the trustee a contribution under section 139P(1) or 139Q(1) is not entitled to leave Australia unless, on application made by the bankrupt, the Court has made an order granting the bankrupt permission to leave Australia.

(2) The Court must not grant permission:

(a)unless it is satisfied that:

(i)it is necessary for the bankrupt to leave Australia in order to continue to derive income; or

(ii)it is appropriate for compassionate reasons relating to the death or serious illness of a close relative of the bankrupt to allow the bankrupt to leave Australia; and

(b)if any payments in respect of the contribution will fall due before the bankrupt proposes to return to Australia - unless it is satisfied that the bankrupt has made those payments or has made arrangements that the Court is satisfied will ensure the making of those payments. "

The applicant, who is seeking permission to travel overseas for her honeymoon from 18 December 1995 to 25 January 1996, would not succeed in obtaining permission to travel overseas on an application under s 139ZU because she does not come within the requirements set out in s 139ZU(2)(a)(i) or (ii). In my opinion however, she is not a "bankrupt who is liable to pay to the trustee a contribution under s 139P(1) or
s 139Q(1)...". The consequence of the declarations I have made is that she now requires only the trustee's consent to travel.

Pursuant to s 139P and 139S of the Bankruptcy Act, the applicant - a teacher employed by the Department of Education - was assessed as being liable to pay contributions of $305.00 per month to her estate for the contribution assessment period ending 27 June 1996.  The monthly payments were due to commence on 27 July 1995. 

On 3 November 1995 representatives for the applicant wrote to the Official Receiver seeking consent for the applicant to travel overseas. That letter suggested that the applicant was intending to pay as a lump sum all outstanding contributions due in the contribution assessment period ending 27 June 1996 and that she would therefore no longer be "liable to pay to the trustee a contribution under s 139P(1) or 139Q(1)"; she would then not come within the terms of s 139ZU(1) and would require only the consent of the trustee in order to travel rather than an order of the court in accordance with s 139ZU.

The Official Receiver wrote back to the applicant's representatives on 6 November 1995 stating that they had received legal advice that if an assessment under s 139P or 139Q of the Bankruptcy Act has been made, then a person must apply to the court for permission to leave Australia. The letter indicated that this was so even if the applicant had made all payments outstanding under the particular assessment. The trustee felt it had no discretion to grant Ms Nelson permission to travel outside Australia.

On 10 November, in response to a request from the applicant's solicitors, the Official Receiver provided the details of the annual contributions of the applicant for the present, and future, contribution assessment periods.  That letter indicated that the total amount still payable for the contribution assessment period from 27 July 1995 to 27 June 1996, taking into account a pay-rise Ms Nelson expects on 23 January 1996, totalled $954.00.  

In an affidavit of the applicant filed 4 December 1995, the applicant deposes to the fact that a cheque for the amount of $954.00 has been sent by her solicitor to the Trustee in Bankruptcy, by courier, on 27 November 1995.  The letter accompanying that payment, from the solicitors for the applicant, said:

"We enclose herewith a cheque from our client's parents' company in payment of her assessable contributions for her first assessment year. The amount is in accordance with advices that we received from Mrs Alison Bryde on [sic] your Assessment Section on Friday, 24 November, 1995.  As such, out client presently does not owe any money concerning the current assessment period. 

Accordingly, we again call upon you to use your discretion and return to our client her passport and provide advices in writing that she may leave Australia. "

The response dated 28 November 1995 from ITSA said:

"I confirm that I received the amount of $954.00 in payment of Tania Nelson's contributions liability for the first contribution s [sic] assessment period starting from 28 June 1995 to June 1996.  This liability has been calculated based on her estimated income for the period. 

As advised to you in my letter dated 6 November 1995, I have no discretion to grant Ms Nelson permission to travel outside Australia. " 

The question in the present application was whether the applicant was a person "liable to pay the trustee a contribution under s 139P(1) or 139Q(1) of the Bankruptcy Act 1966" for the purposes of s 139ZU(1).

The Official Trustee was represented at the hearing before me but did not make submissions on this question other than to indicate that if the court made the declarations sought, confirming that s 139ZU did not apply to the applicant, it would consent to her overseas travel in the ordinary way.

Liability to pay a contribution under s 139Q(1) depends upon a "subsequent assessment", as defined in s 139K, having been made. No such assessment had been made at the time of the present application so the applicant is not "liable to pay the trustee a contribution under...s 139Q(1)".

Nor, in my opinion, for the reasons below, is the applicant a person "liable to pay the trustee a contribution under...s 139P(1)".
The scheme that is set up by Division 4B of Part VI of the Act, to assess and collect a portion of the bankrupt's post-bankruptcy income for the benefit of creditors, works in the following way.

A contribution assessment period is defined in s 139K as being a period that:

"...

(a)begins on:

(i)the commencement of the bankruptcy...; 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; "

Under s 139W the trustee is required, as soon as practicable after the start of each contribution assessment period, to make an assessment of the income that is likely to be derived by the bankrupt during that period and to assess the actual income threshold amount that is applicable in relation to the particular bankrupt when the assessment is made. From those figures, the trustee then applies the formula in s 139S to obtain the contribution that a bankrupt is liable to pay in respect of a contribution assessment period.

Section 139P is headed "Liability of bankrupt to pay contribution" and subsection 1 provides as follows:

"(1) Subject to section 139Q, 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, the bankrupt is liable to pay to the trustee a contribution in respect of that period. "

The liability created by s 139P is in respect of a particular assessment period only. It, as well as s 139ZU, speaks of a lability "to pay"; the provisions do not speak of a liability to "make" contributions.

In my judgement, once the bankrupt has paid all of the contributions for a particular assessment period, the liability to pay a contribution in respect of that period is extinguished. That liability remains so extinguished unless and until the trustee makes a "subsequent assessment" under s 139W(2) and thereby causes a fresh liability in respect of the period in question to be created by s 139Q(1).

In Deputy Commissioner for Taxation v Moore Bank Pty Ltd [1987] 1 Qd R 414 the Deputy Commissioner sued to recover moneys alleged to be payable under assessments to income tax in respect of the years ended 30 June 1974, 1975 and 1976, together with additional tax thereon pursuant to s 207 of the Income Tax Assessment Act 1936 the writ being issued on 1 April 1986. The defendant taxpayer pleaded that the claims to recover income tax and additional tax were barred by the operation of s 10(1)(d) and (5) of the Limitation of Actions
Act 1974-81.  On 3 September 1986, the Full Court overruled the demurrer by the plaintiff to that plea.  The defendant then moved pursuant to O 29 r 10 for such judgment as to the plaintiff's causes of action as it appeared to be entitled to on the pleadings.  The Full Court of the Supreme Court of Queensland held that additional tax ceased to accrue when the income tax became irrecoverable. 

Connolly J, (with whom McPherson and Derrington JJ agreed), while discussing the phrase "a person liable to pay the tax" in s 207(1) of the Income Tax Assessment Act 1936 (Cth), at 416, referred to a passage from Hall v Bonnet [1956] SASR 10 where Napier CJ and Abbott J said:

"The dictionaries do not agree on the derivation of 'liable' (or 'lyable') from 'ligabilis' (cf. the Oxford English Dictionary with the Shorter Oxford Dictionary), but we think that they agree that the primary meaning (in law) is 'that can be bound'.  In this context, however, where the legislature is dealing with 'proceedings against and contributions between tortfeasors', the meaning is rather narrower than that.  A person 'liable' is one who can be compelled to pay by using the due process of law. "

And later they said:

"In this sense it seems to us that 'liable' comprehends the state of a wrong-doer from the time of the fault committed to the point at which his liability is established and quantified by the judgment, and, beyond that, to the point as which it is discharged whether by release or payment or otherwise. "

In my opinion, a person is not liable to pay a sum of money if the liability to pay, to which the person has been exposed, has been extinguished by payment.
       In Re Tyndall (1977) 30 FLR 6, Deane J, when discussing the clipping of a bankrupt's wings by the Act said at 14-15:

"It is only in recent years that the Commonwealth bankruptcy legislation has made it an offence for a bankrupt to travel overseas without the consent of his trustee and has required a bankrupt to surrender his passport to his trustee once a sequestration order is made. Bankruptcy does not, of itself, involve any criminal offence. A citizen should be free to travel if and when his commercial activities or personal desires prompt him so to do. Restrictions upon such travel under the Bankruptcy legislation must be seen as being aimed at insuring the proper administration of the bankruptcy laws and of bankrupt estates under such laws and not as a penalty imposed upon a citizen as a consequence of inability to pay debts leading to the making of a sequestration order. In some cases, the possibility that the bankrupt has committed offences under the Act and is seeking to abscond from possible prosecution will be extremely relevant. "

In the present case, the applicant is due to leave on 18 December 1995 and is due to return on 25 January 1996 to resume her job as a teacher and to continue her contributions to her estate.  There is nothing in the material to suggest that the applicant is intending to abscond; nor is there any indication that my interpretation of the provisions in Division 4B of Part VI will in any way hinder the proper administration of Ms Nelson's estate.

Further, I should note s 139J which outlines the objects of Division 4B of Part VI. Those objects are (a) to require a bankrupt who derives income during the bankruptcy to pay contributions towards the bankrupt's estate; and (b) to enable the recovery of certain money and property for the benefit of the bankrupt's estate. To interpret s 139ZU as not applying to a bankrupt who has prepaid all assessments due for a particular contribution assessment period in no way offends the objects of the Division.

For the above reasons I made the declarations earlier outlined.

I certify that this and the  preceding eleven (11) pages are a true copy of the reasons for judgment herein of the Honourable Justice Spender.

Associate

Date: 6 March 1996

Counsel for the applicant     :        Mr A A J Horneman-Wren

instructed by               :        Butler, McDermott & Egan

Representative of Official

Receiver:        Mr R Saunders

Date of Hearing             :        15 December 1995