| IN THE | FEDERAL COURT OF AUSTRALIA |
| GENERAL DIVISION | ) | No. W 94 of 1987X |
| ) |
| BANKRUPTCY | DISTRICT | IN TFIE | ) ) |
| STATE OF NEW | SOUTH WALES AND THE |
AUSTRALIAN CAPITAL TERRITORY
| - | Re : | JOFIN PHILIP SWAIN |
Debtor
| Ex parte | DEPUTY COMMISSIONER |
| OF TAXATION |
Applicant
CORAM: Einfeld J.
| - | DATE: 31 March 1988 |
| PLACE: Sydney |
| This is an application by the debtor for | an adjournment of a creditor's |
| petition brought on behalf | of the Deputy Commissioner | of Taxation (the |
| deteriorating medical condition. |
| o r |
| Commissioner) seeking a sequestration order on the basis | of | unpaid |
| income tax dating back to | 1981. The petition was presented | in April 1987 |
| and has been successively adjourned on | a number of occasions to permit |
consideration by the appropriate tribunal of an application by the
| debtor | for | relief | on | the | grounds | of | a rapidly | and | seriously |
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Evidence available to me from impeccable medical sources suggests that
the debtor is facing a very critical medical deterioration and that at
| best he can expect to be | in a wheeichair during the current calendar |
| year. He also has | on the medical evidence a short life expectancy, and |
when his condition deteriorates to the extent necessary to require
ambulation only by wheelchair, it will be impossible for him to feed and
toilet himself.
In these circumstances, it is not easy for me to see the basis upon
which the review board determined not to grant him the relief sought but
| that is ultimately not a matter | for me unless the matter comes back to |
| the court | in | the form of an application for judicial review of the |
| decision. |
| It is said that the present debt owed by the debtor is | of the order of |
| $191,000 and that no payment has been made | in respect of income tax |
debts for some seven years. Of the alleged debt it is clear that a
considerable amount is interest, late lodgment fees and other penalties
| of one | kind | or | another. The debtor says that he recently paid some |
$16.000 which has not yet been credited. But whatever the size of the
| debt it will obviously be substantial and | in excess of $100.000. At the |
appropriate time, it is my view that the Commissioner should give
| serious and favourable consideration to rebating | or remitting some of |
| the penalties and interest to which | I have referred because of the |
circumstances under which they have accrued. These circumstances include
the fact that the application for review by the review board on the
| grounds of | D r Swain's | deteriorating health was delayed from | 1983 to 1987 |
| in | circumstances which have never been explained and which obviously |
| occurred due to administrative | or other bureaucratic causes which should |
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have been avoided. If they had been avoided, the application for review
| would have been dealt with long before the end of | 1987, and the accrued |
interest and penalties would more than likely not have accrued at all.
At least if they had accrued they would have clearly been the fault of
the debtor and no-one else.
| The application for | an adjournment now is substantially based upon the |
| debtor's wish to finalize | an outstanding application | in the Family Court |
for a division of property jointly owned by himself and his former wife.
| A | letter from the debtor's solicitors to the Australian Government |
| Solicitor of | 29 March 1988 informs me that an application for an |
expedited hearing of the debtor's application for property orders will
| be heard by the Family Court on | 20 April, that it | is supported by the |
| wife and that it | is based upon the debtor's grave medical condition. |
| There can be little doubt that the application for | an expedited hearing |
will be successful but that will not by itself fix the date by which the
| substantive matters will be resolved. | On the assumption that they will |
be resolved approximately four to six weeks after the date of the
application for an expedited hearing, in substance the application for
| an adjournment of the petition | is therefore one | of.the order of eight to |
| ten weeks. At the earliest, therefore, the bankruptcy petition could not |
| be before the court until some time | in June. |
| The debtor's | application for a property settlement in | the Family Court |
| seeks a sale | of | the | jointly | owned | matrimonial | home | which | is |
unencumbered. It is said that the value of this home in March 1987 was
$260,000 but the debtor says from the bar table today that it is
| probably worth $100,000 more than that. The home is in St.1ves and | I do |
| not doubt that | a March 1987 valuation is now quite out of date. |
The application before the Family Court by the debtor seeks that from
| the proceeds | of the sale of the home there should first be discharged |
the debt to the Taxation Department and that after appropriate other
| adjustments, the balance should be divided equally. | I am informed that, |
in addition to that property, there are other assets available for the
| taxation debt, namely | a motor car and an insurance policy amongst |
others. On the other hand, the wife seeks orders from the Family Court
| which would in substance vest almost all the debtor's property | in her. |
| It is impossible, | of course, for me to make even the slightest tentative |
| assessment | of the relative chances of success of | the parties | in the |
| Family Court. What I do know is that if | I make a sequestration order |
| today all the property of the debtor will vest | in the trustee who is |
| appointed, the consequence | of which will be that the Family Court will |
| either not have any opportunity of passing judgment on the merits | of the |
| issue before it so far as they affect the property | of the debtor, or |
| there will be | a substantial and controversial dispute as to whether the |
| Family Law Act takes any kind | of priority over the Bankruptcy Act | 1966 |
(the Act). The possibilty for conflict between the Family Court and the
| Federal Court is therefore very prominent. |
| The Commissioner resists the application for an | adjournment and says |
| that he should be entitled to move for | a sequestration order today on | a |
| number of grounds. | Re says, relying upon the English case | of Re A Debtor |
| (1984) 2 All E.R.257, that he has | a prima facie right to | a sequestration |
| order. This may well be | so although I do not pass particularly on the |
| words used by the court | in England in that case. Rowever an adjournment |
| will not interfere with that prima facie right if | it exists. He does not |
| I | 1 |
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| have | a prima facie right to | a sequestration order as some type | of |
| superior | right | to | another | party | to | an adjournment if that | be |
| established. Be certainly does not have | a prima facie right to the |
acceptance of his resistance to the adjournment application.
| The Commissioner says further that | by reason of another English decision |
Re A Debtor(1924) B.& C.R.32 that the debtor has failed to supply all
relevant information to the Court concerning his assets or likely assets
| and other relevant matters. This is also supplemented by | a submission |
| that | an | undertaking given to the Court on behalf of the debtor on 15 |
| October 1987 to give at least ten days' notice to the Commissioner | of |
| any step taken | or hearing or conference appointed in | the Family Court |
has been broken. I do not accept either of these submissions. There is
enough information before the Court at present to indicate the real
| basis of the application for | an adjournment and of the matters before |
| the Family Court | on which it is founded. There is certainly ample |
information of the medical condition before the Court. In addition, the
| letter of the solicitors for the debtor of | 29 March gives more than ten |
days notice of the proposed hearing in the Family Court. In fact, it
gives 22 days' notice. If the Commissioner wants to know anything else
| in the matter, he can certainly have his representatives speak | to the |
| solicitors for the debtor. |
| The Commissioner rightly points to the fact that | in proceedings before |
| me in October | 1987 | there | appeared | for | consideration | a deed | of |
arrangement entered into by the debtor and by other persons which had
| the effect of excluding | or seeking to exclude the taxation debt from any |
| possibility | of | being paid whilst preserving the interests of other |
| creditors. This was | an unmeritorious and not particularly creditable |
attempt to create a deed of arrangement. The debtor tells me that he
| proceeded upon legal and accounting advice and | I ccept that he did not |
| wilfully allow | or want the law and morality to conflict, but he must |
have known at the time when he entered into the deed of arrangement what
| the | effects | of | the | arrangement | were | and | the | likelihood, | if | not |
certainty, that his major debt would by the deed of arrangement be
avoided.
The Commissioner also correctly points to the fact that the application
| for a sequestration order | is now almost one year old, and that although |
| the delay | in the hearing of his submission to the review tribunal was |
not particularly the fault of the debtor, nonetheless, now that it has been disposed of, there ought be no other reason for further delay. In particular, he submits that there is no ground for supporting a delay in
the hearing along the lines that the wife should have some sort of 'fair
| go' in the Family Court, amongst other reasons because | if sh has a good |
claim there, it would have the effect of diverting monies away from
creditors and in effect, avoiding the Act altogether. The Commissioner
| rightly says that the costs | in this matter are already very large, and |
| that at least some, if not a considerable amount, | of them have been |
| incurred | in relation to the unmeritorious attempt at composition with |
creditors. Be asserts that in effect this application for adjournment is
| based on what he describes as | 'a | vain hope' | that the debtor will be |
| successful in the Family Court | in obtaining a sufficiently good result |
| as to ensure that the taxation debt, | o r most of it, will | be paid, | or |
| able to be paid. |
This is therefore not a particularly easy matter to resolve. There are faults on both sides and there are arguments in support of both sides'
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| points of view. The ultimate question, | I suppose, is where the balance |
| ought to be drawn. My view is, not without | a little hesitation, that the |
| application for adjournment should be granted. | I take into account the |
assertion that it may all be very theoretical because the debtor's
chances of success in the Family Court may be less than high. On the
other hand, it is not likely that the application would be made and
persisted in if it did not have some reasonable chances of succeeding at
least in part because otherwise more money is just being thrown away in
| a vain | and | fruitless | escapade | which | the | health | and | financial |
circumstances of the debtor could hardly warrant and merit.
I must therefore proceed upon the basis that the application has at
| least some chance of being partly successful. | I do not think that it is |
| right that | I should make | an order now which may deprive the Family court |
| of | an | effective opportunity to exercise its undoubted jurisdiction in |
the matter. It is true that the matter may ultimately boil down to who
| should get priority, the wife | or the Commissioner, but | I have no doubt |
| that | the | Family | Court | will | be | able | to | take | that | matter | into |
| consideration. It strikes me as being unpalatable to take | an | act now |
| which can be avoided | or at least postponed and which would have the |
| effect of promoting | a potential dispute of considerable consequences and |
repercussions between the respective powers of the Federal Court and the
| Family Court over property which comes within the purview of both. | If |
| this matter had, for example, been before the court in | 1983 or 1984 as |
it certainly should have been, this potential conflict would, although
in theory existing, not have been as starkly before the court as it now.
| I do not believe that | I should take a | step which would facilitate | or |
| would amount to | a lawyers' picnic in determining the respective holds |
| and sways of the courts, at any rate, not at the actual | or potential |
| expense of the taxpayers of Australia per medium of | the Commissioner or |
| of Dr Swain who has enough problems of his own not to have this added | to |
| it. |
In all these circumstances, it seems to me that it is therefore right to grant the adjournment and I will do so. The matter is stood over for
| further directions | t o 22 April 1988 at 9.30am before me. Costs are |
| reserved. |