RH Mackay and Associates v Sullivan
[2005] FMCA 123
•15 February 2005
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| RH MACKAY & ASSOCIATES & ANOR v SULLIVAN & ANOR | [2005] FMCA 123 |
| BANKRUPTCY – Validity of notice issued pursuant to s.139ZL – whether the first applicant is the alter ego of the second applicant. |
| First Applicant: | RH MACKAY & ASSOCIATES PTY LTD |
| Second Applicant: | ROBERT HUGO MACKAY |
| Respondent: | MAURICE LOUIS SULLIVAN in his capacity as Deputy Official Receiver |
| Second Respondent: | SCOTT DARREN PASCOE as trustee of the property of Robert Hugo Mackay (A Bankrupt) |
| File No: | BRG 539 of 2003 |
| Delivered on: | 15 February 2005 |
| Delivered at: | Brisbane |
| Hearing date: | 25 May 2004 |
| Judgment of: | Baumann FM |
REPRESENTATION
| Counsel for the Applicants: | Mr Dearn |
| Solicitors for the Applicants: | Whitehead Payne Lawyers |
| Counsel for the Respondents: | Mr Skinner |
| Solicitors for the Respondents: | Freehills |
ORDERS
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRG 539 of 2004
| RH MACKAY & ASSOCIATES PTY LTD AND ROBERT HUGO MACKAY |
Applicant
And
| MAURICE LOUIS SULLIVAN IN HIS CAPACITY AS DEPUTY OFFICIAL RECEIVER & ANOR |
Respondent
REASONS FOR JUDGMENT
Introduction
Robert Hugo Mackay (“Dr Mackay”) is a 72 year old senior practising radiologist. By order of this Court in Sydney on 12 September 2002 his estate was sequestrated. Whilst Dr Mackay disputes the judgment founding his bankruptcy, no applications to set aside the judgment; to set aside the previous Bankruptcy Notice; to contest the creditor’s petition or to annul the Bankruptcy Notice have been filed by
Dr Mackay.
As a consequence of his bankruptcy, on 6 December 2002, the First Respondent Maurice Sullivan (“Deputy Official Receiver”), purported to issue a Notice under s.139ZL of the Bankruptcy Act 1966 (“the Act”) requiring a contribution to be made to the Second Respondent Scott Pascoe (“the Trustee”) by the Health Insurance Commission (“HIC”).
Dr Mackay (as Second Applicant) and the company RH Mackay & Associates Pty Ltd (“the company”) as First Applicant apply to this Court for an order that:-
“1.The notice issued by the respondent pursuant to section 139ZL of the Bankruptcy Act 1966, dated 6 December 2002, be set aside and all monies paid thereunder be reimbursed to the First Applicant.”
The respondent’s oppose the Application. An earlier application seeking the same relief was dismissed, but nothing turns on that dismissal in these proceedings.
Grounds for Application
The applicants submit that:-
a)The notice is as a matter of law, on its face invalid and must be set aside as:-
(i)No part of the facts and circumstances set out on the face of the Notice avoids the invalidity created by such a Notice’s non-compliance with the terms of s.139ZL(2).
(ii)No part of the facts and circumstances set out on the face of the Notice specify the basis for the recipient of the Notice (HIC) holding funds, as is required.
(iii)The alleged facts and circumstances referred to in s.139ZM are those facts and circumstances which must appear in a notice by virtue of s.139ZL(2).
The Applicants rely heavily upon the decision of Seaman J in Re Bond; Ex Parte Bond v Caddy (No.1) (1994) 11 WAR 330.
Legislative Framework
Section 139P of the Act provides that where a Trustee assesses a bankrupt will have income which exceeds the actual income threshold amount, the Bankrupt is “liable to pay to the Trustee a contribution” in respect of a contribution assessment period. Section 139ZK says that Subdivision 1 of Division 4B of Part IV of the Act applies to a person:-
“(a)From whom any money is due or accruing, or may become due, to a bankrupt;
(b)Who holds or may subsequently hold, money for or on account of a bankrupt.”
Section 139ZL enables the Official Receiver to give a notice to a person who holds money for or on account of a bankrupt who is liable to pay a contribution under s.139P.
Section 139ZL(2) relevantly provides that:-
“(2)The Notice must set out the facts and circumstances, and in particular must specify the money or property, because of which the Official Receiver considers that this subdivision applies to the person to whom the notice is given.”
Section 139M gives the Court power to set aside a notice if the Court:-
“is satisfied that this subdivision does not apply to the person on the basis of the alleged facts and circumstances set out in the Notice.”
Background Facts
The trustee assessed the Bankrupt on 22 November 2002 as being liable pursuant to s.139P to contribute $145,564.10 for the benefit of his creditors in respect of the period 11 September 2002 (the date of sequestration) to 10 September 2003. This assessment was based on a letter from HIC to the Trustee dated 18 November 2002, where HIC reported (in response to a s.77C Notice) that the “Medicare benefits paid to Robert Hugo Mackay” during the periods from 11 September 2001 to 11 October 2002 totalled $801,798.80. (“SDP 6”)
A review of the assessment was not sought by the bankrupt pursuant to Subdivision 9 of Part VI of the Act.
The Company was incorporated on 23 August 1989 and Dr Mackay was a Director until shortly prior to his Bankruptcy when his friend of 40 years, Douglas Graham Harper, became the sole Director.
Dr Mackay claims to be a part time employee of the Company paid $50,000 per annum and provided subsidised housing in a unit owned by the company.
Dr Mackay says, as a term of his employment (not apparently documented other than obscurely in company minutes until a letter was prepared by Mr Harper on 1 December 2002), he has assigned any benefits due to him from his practice as a radiologist to the company. Dr Mackay conceded he must sign the claim forms (now apparently achieved electronically) “which allows the company to be paid on the bulk billing basis by the Health Insurance Commission”.
The Company has experienced difficulty in paying its debts, particularly to the Australian Taxation Office. Mr Harper formed the view, it seems on the evidence, that the Company might be trading insolvently and as a result of those concerns, and other concerns and allegations expressed by him of a failure of the company solicitors to properly account for some funds due to the company, he gave notice to Dr Mackay of his intention to resign. He had, at trial done so.
Dr Mackay says that the obligations (unlawfully in his view) for funds to be intercepted between the HIC and the company, has caused the company financial difficulties and puts at risk the employment of a range of staff engaged in the 5 clinics operated by the company on the Gold Coast.
He says the current shareholders of the company effectively control the company. The current shareholders of the 20 issued shares in the company are:-
a)His former wife – Dr Alexandra Kersting (1 share); and
b)His 14 year old son Andrew (19 shares).
Is the Company the Alter Ego of Dr Mackay
The history of the company’s administration, particularly since the bankruptcy of Dr Mackay coupled with:-
a)The evidence of Dr Mackay which unreliably in my view, seeks to assert a lack of control of the company;
b)The frank evidence of Douglas Graham Harper, who in cross-examination (and even during re-examination) made it clear that he never opened a “single item of mail”; “didn’t give a single order” and “didn’t touch a single bank account” and
c)The shareholding of the company,
now make it abundantly clear to me that at all material times the company, in reality, has been the alter ego of Dr Mackay and all his attempts to disguise his control of the entity amount to a sham.
Mr Harper was his puppet. He did as Dr Mackay directed and did not exercise any independent thought or process in the discharge of his duties as a Director of the Company.
Is the Notice Invalid
The relevant section of the said Notice dated 6 December 2002 under the hand of the Deputy Official Receiver, Maurice Sullivan, and directed to the proper officer of HIC provides that:-
“This Notice is issued pursuant to the provisions of Section 139ZL of the Bankruptcy Act 1966 and is based on the following facts and circumstances:-
(1) Of Robert Hugo Mackay became bankrupt on 11 September 2002 and Scott Darren Pascoe is the trustee of his bankrupt estate;
(2) The bankrupt was assessed by the trustee as being liable pursuant to Section 139P of the Bankruptcy Act 1966 to contribute $145,564.10 to the trustee for the benefit of his creditors from his income for the contribution assessment periods 11 September 2002 to 10 September 2003 in accordance with Contribution Assessment No.1 dated 22 November 2002. These assessments being made pursuant to Section 139 W of the Bankruptcy Act 1966 (copy enclosed).
(3) To date, the bankrupt has made nil payments towards his contribution liability as required by the Act and is in arrears in the amount of $145,564.10.”
HIC is described in the notice as:
“an entity, who holds or may subsequently hold money for or on account of the bankrupt, or an entity from whom money is due or accruing, or may become due to the bankrupt”.
No objection was raised by the Applicant’s to the evidence given by Mr Pascoe that he as Trustee has received monies in response to the Notice. Perhaps this was because in an affidavit relied upon by the Applicants, Mr Harper deposes to the monies so paid (see paragraph 26 of Affidavit filed on 6 October 2003 and Exhibit DGH-6 to that Affidavit).
I accept the view expressed by Seaman J in Bond (supra at 336) that:-
“the Notice is intended to be an efficient administrative method of collection of an income contribution due from but unpaid by a bankrupt and s 139ZM confines the Court to a consideration of the allegations which it contains.”
In essence, the Notice must in my view on its face comply with the terms of s.139ZL(2), although:-
“if any selection of the alleged facts and circumstances set out in a Notice satisfies me that the subdivision applies in any respect then the Notice should not be set aside” (Bond at 336).
Such a view is implicitly supported by the decision of the Full Court in Official Trustee in Bankruptcy v Lopatinsky (2003) FCAFC 109, where the Court (dealing with a s.139ZQ Notice) accepted the analysis of Seaman J in Bond on this point.
I have formed the view, after a consideration of the submissions, both written and oral, that the Notice does not set out the facts and circumstances which specify the basis for the recipient of the Notice (HIC) holding funds or who may subsequently hold funds for or on account of the Bankrupt. I adopt, in this regard, the remarks of Seaman J at 341 that:-
“the words ‘alleged facts and circumstances’ in s 139ZM do not involve the sometimes difficult distinctions between questions of law, material facts, particulars and evidence which arise in other forms of proceeding, but instead are directed to the fair identification of a claim in a form which enables its adequacy to be challenged under the section. In my view the word “circumstances” in s 139ZM includes an assertion of practices which are common in particular callings.”
The notice in this matter makes nothing but a bland assertion that HIC “holds or may subsequently hold money” for the Bankrupt.
Reference in the Notice could have been made for example, simply to:-
a)the fact that the Bankrupt is a practitioner within the meaning of the Health Insurance Act 1973 (Cth);
b)any past practice of patients of the Bankrupt assigning benefits to the Doctor pursuant to s.20A; and
c)the common practice with some medical practitioners to bulk bill – a practice adopted by Dr Mackay it seems in the past.
The only additional alleged fact that is asserted by the Respondent, set out in the Notice, is the reference to s.139P.
Mr Skinner in Submissions said it is important that Dr Mackay never challenged the Actual assessment under s.139P, as it is the assessment which grounds the issue of the s.139ZL notice. That is true, in that if the assessment had been successfully challenged and, say set aside, a notice under s.139ZL would not issue.
However this does not mean that the mere mention of the assessment by the Trustee of a liability pursuant to s.139P, establishes sufficient facts and circumstances to enable the person to whom the notice is given to be satisfied the subdivision applies to the person.
I do not believe, as the Respondent’s submissions suggest, that the special knowledge of the recipient (grounded on their letter to the trustee of 18 November 2002) can validate the Notice. The fact of that letter being delivered could well been a fact and circumstance recited (and relied upon) by the Official Receiver in the Notice. I think the Notice should be capable of standing “on its own.”
The fact that it cannot do so because of its non compliance with s.139ZL(2) means the Notice may be set aside. The Bankruptcy jurisdiction is a particularly technical area of the law, where strict compliance, if demanded by the Act must generally be observed. The clear intention of the legislature is evinced by the use of the word “must” in s.139ZL(2).
However, it is clear as well that the power to set aside the Notice is discretionary under s.139ZM.
I have taken the view that where a notice does not comply with the requirements of s.139ZL, then it would be only in exceptional circumstances that the Notice would not be set aside.
I do not believe the circumstances of this case are exceptional.
I propose to therefore order that the Notice dated 6 December 2002 be set aside.
Claim for refund of monies paid
The Applicants did not include adequate submissions in my view, to support their assertion that if the Notice is set aside, any funds paid to the trustee must be necessarily reimbursed.
I am not satisfied this is the case especially where the conduct of the Bankrupt in the management and operation of his practice was, on the evidence, a sham.
The submission made by Mr Skinner at paragraphs 12.1 to 12.4 that:-
“12.1The Applicants seek orders not just that the s 139ZL notice be set aside, but also that “all monies paid thereunder be reimbursed to the first applicant” (see paragraph 1 of annexure A to the application fled by the Applicants on 6 October 2003).
12.2The money in question (the money paid by the HIC to the trustee under the s 139ZL notice) is income (as defined by the Bankruptcy Act 1966 (Cth)) earned by the bankrupt in the period from 11 September 2002 to 10 September 2003.
12.3 Even if the requirement imposed upon the HIC to pay money to the trustee were set aside, the money would be that of the bankrupt. Unless validly assigned, the money earned by the bankrupt in that period must still be paid to the trustee, pursuant to the income contribution assessment dated 22 November 2002, for the period 11 September 2002 to 10 September 2003 ( at exhibit “SDP 7” to the affidavit of Scott Darren Pascoe filed on 14 November 2003).
12.4 Therefore, even if the s139ZL notice is liable to be set aside, it does not follow that the trustee would be obliged to pay the money paid to the trustee by the HIC to the First Applicant. Once payments have been received by the trustee, the notice is complete and it is no longer open to the Company to assert a pre-existing entity.”
has some force.
Mr Dearn, in his oral submissions said a consideration of the effect of an order to set aside the Notice (including the application of s.139ZM(2)), was a matter subsequent to my determination of the seminal issue. I agree.
I will hear further submissions and make further directions in that regard.
I certify that the preceding forty-one (41) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate:
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