Terry, W.A. v Prentice, M.W
[1994] FCA 937
•02 DECEMBER 1994
WALLACE ALLAN TERRY and JOYCE TERRY v. MAXWELL WILLIAM PRENTICE and THE
OFFICIAL RECEIVER
No. NB1815 of 1992
FED No. 937/94
Number of pages - 10
Bankruptcy
COURT
IN THE FEDERAL COURT OF AUSTRALIA
BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES
LINDGREN J
CATCHWORDS
Bankruptcy - Trustees - Issue of notice to give information and produce books to Official Receiver pursuant to s 77C of the Bankruptcy Act 1966 (Cth) - application to set notice aside - whether notice can require person to give information by attending before Official Receiver for "examination" - whether notice addressed to a director of company to produce company documents is valid - whether notice to produce all the books and accounting records of company as trustee for a trust is too broad - whether notice issued for improper purpose - whether requirements of attendance for examination and of production are severable.
Bankruptcy Act 1966 (Cth) ss 77C, 267B, 267C, 267D, 267E and 267F
HEARING
SYDNEY, 16 November 1994
#DATE 2:12:1994
Mr M.R. Aldridge of Counsel instructed by P.W. Turk and Associates appeared for the Applicant.
Mr A. Armstrong of Holmes and Bevan appeared for the Official Trustee.
Miss S. Nash of Sally Nash and Co appeared for the Official Receiver.
ORDER
The Court Orders:
1. That on 9 December 1994 at 9.30 am the applicant bring in short
minutes in conformity with the Reasons for Judgment providing for the setting aside of the notice dated 3 November 1994 from Robert John Cruickshanks, Acting Official Receiver, to the applicant in so far as it requires production of the books and accounting records ofAba-Fel Pty Limited, as trustee for The Terry Family Trust, for termination of the stay of that notice otherwise, and for all matters consequential upon that termination.
That the question of the order to be made (if any) as to the costs
of the proceedings be stood over to 9 December 1994 at 9.30 am.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
NATURE OF PROCEEDINGS
LINDGREN J By application filed on 15 November 1994, the applicant Joyce Terry ("the applicant" and "Mrs Terry"), the wife of the bankrupt Wallace Allan Terry ("the bankrupt" and "Mr Terry") has applied for an order that a notice bearing date 3 November 1994 from Robert John Cruickshanks, Acting Official Receiver, addressed to her, be set aside. In the alternative, Mrs Terry has sought an order setting aside the decision of the first respondent ("the Trustee" and "Mr Prentice") who is the trustee of the bankrupt estate of Mr Terry, to seek the issue of, and the decision of the second respondent to issue, the notice, be set aside. However, this alternative head of relief was not pressed.
The notice purports to have been issued under s 77C of the Bankruptcy Act 1966 (Cth) ("the Act"), and a copy of it is, for convenience, annexed to these Reasons and marked "A". Mrs Terry deposed that the notice was not served upon her until 11 November 1994. As can be seen, the notice required Mrs Terry "to attend an examination on Wednesday 16 November 1994 at 10.30 am ... to provide information relating to the income and assets of the bankrupt, and to produce the books and accounting records of Aba-Fel Pty Limited, as trustee for The Terry Family Trust". On Tuesday 15 November 1994 Mrs Terry sought interlocutory relief on an ex parte basis, but I declined to grant such relief ex parte and made the application returnable before me the following day, 16 November 1994 at 9.30 am and abridged the time for service.
At the hearing at 9.30 am on 16 November, all parties were legally represented. When it became clear that the hearing would not be concluded by 10.30 am, by consent I ordered that the notice dated 3 November 1994 be suspended until 12 noon. When it further became clear that it would not be possible for the hearing and delivery of reasons to be concluded by 12 noon, by consent I ordered that the notice be suspended until further order of the Court and reserved my decision.
FACTS
4. Mr Terry became a bankrupt on 2 July 1992. Mr Prentice care of Prentice Parbery and Barilla ("PPB") thereupon became trustee of the estate of the bankrupt by force of sub-section 156A (3) of the Act. Within the office of PPB, a Mr J Boardman ("Boardman") appears to have had the day to day conduct of the administration of Mr Terry's bankrupt estate.
A company named Aba-Fel Pty Limited ("Aba-Fel") is apparently the trustee of the "Terry Family Trust" ("the Trust"). The terms of the Trust were not in evidence before me. Nor are the memorandum and articles of association of Aba-Fel. Apparently at all relevant times the Trust property has included a business of making and selling "sliding joints" which are used in connection with concrete and brick construction work. Mr Terry ceased to be a director of Aba-Fel on 15 March 1988. According to Mrs Terry's affidavit, he has continued to be employed by Aba-Fel in the actual making of the sliding joints, delivery of them to customers and the recording of orders from customers. Mrs Terry is a director of Aba-Fel. The evidence does not establish how many persons are directors of Aba-Fel, who (apart from Mrs Terry) is a director (it may well be that Mrs Terry's son, Craig Terry, is a director), whether Mrs Terry is an executive director or what the scope of her responsibilities is.
The evidence suggests that the Trustee has suspected that the bankrupt has been receiving less than "reasonable remuneration" for his work as an employee of Aba-Fel's. Accordingly, the Trustee has indicated his proposal to make a determination under s 139Y of the Act that, for the purpose of his making an assessment of the bankrupt's income and of the contribution that the bankrupt is liable to pay, the bankrupt receives or received "reasonable remuneration" in respect of his employment by Aba-Fel. For the purpose of his assessing the "reasonable remuneration" of the bankrupt, it is important that the Trustee have available to him adequate documents and information.
It is against this background that the communications between the Trustee, PPB and Boardman on the one hand, and the bankrupt, Mrs Terry, Aba-Fel and the solicitors representing the three of them, namely P W Turk and Associates ("Turks") on the other hand, is to be understood. The relevant partner in Turks has been Pieter Edward Oomens ("Oomens") and the relevant employed solicitor in Turks has been David E Collinge ("Collinge"). It will be convenient to give an account of the communications referred to in chronological order.
4 February 1994
8. Prentice wrote Turks advising that in order for Prentice to complete his assessment of the bankrupt's liability to make contributions to the estate, it would be necessary for him to review the books and records of Aba-Fel. Collinge was requested to contact Boardman when the books and records were ready to be inspected.
10 February 1994
9. Turks replied asking Prentice to identify the legal basis of the alleged entitlement to inspect the books and records of Aba-Fel.
16 February 1994
10. Boardman told Collinge that the basis was ss 139U and 139V of the Act.
23 February 1994
11. Turks wrote to Prentice contending that those sections did not support his claim, and that Aba-Fel would not comply with his request.
4 March 1994
12. Prentice advised Turks that he did not agree with their interpretation of s 139V, adding that he wished to inspect Aba-Fel's cashbook and supporting documents to establish whether or not it was making payments on behalf of the bankrupt, that he would also require Aba-Fel's wages book, and that failure "by the Bankrupt" to provide that information would be "considered to be uncooperative action and (would) attract the appropriate consequences".
30 March 1994
13. Prentice requested Turks to reply to his letter dated 4 March 1994 within 14 days.
30 March 1994
14. Prentice wrote to "The Trustee, Terry Family Trust" advising that the Trust's records for the year ended 30 June 1993 disclosed that the bankrupt was a creditor of the Trust for $6,253.00, and requesting a cheque for that sum payable to Mr Terry's bankrupt estate.
6 April 1994
15. Turks wrote Prentice advising that an opinion from counsel supported Turks' construction of ss 139U and 139V.
19 April 1994
16. Prentice wrote Turks advising that since their client would not allow Prentice to inspect the books and records of Aba-Fel, he had no alternative but to consider that all payments made by Aba-Fel "in regard to motor vehicle expenses, superannuation, travelling expenses and wages (was) income of the bankrupt", and he threatened to forward to the bankrupt "an Income Contribution Assessment".
19 April 1994
17. Prentice wrote to Aba-Fel "As Trustee for the Terry Family Trust" a reminder letter threatening action to wind up Aba-Fel if its cheque was not received within 14 days.
28 April 1994
18. Turks, on behalf of Aba-Fel, wrote to Prentice describing the threat to wind up the Aba-Fel as "outrageous" and advising that Turks were obtaining Aba-Fel's final instructions.
6 May 1994
19. Turks forwarded to Prentice Aba-Fel's cheque for $6,253.00.
6 June 1994
20. Prentice gave notice to the bankrupt purportedly pursuant to ss 139P and 139S of the Act making an assessment that he was liable to make compulsory contributions to his bankrupt estate totalling $54,073.50 in respect of the income period 1 July 1992 to 1 July 1993, the calculation having been prepared, according to the notice, having regard to the financial statements for the Trust as at 30 June 1993. The amount was calculated as being one half of the aggregate of motor vehicle expenses, superannuation and wages minus tax and also minus the "actual income threshold amount" deductible under s 139S. The notice requested payment not later than 30 June 1994, and advised the bankrupt that if he disagreed with the assessment he could apply to the Inspector General pursuant to sub-section 139ZA (1) or to the Official Receiver pursuant to s 139T.
27 June 1994
21. Prentice wrote to Turks requesting that their client forward to Prentice copies of his income tax returns for the years ended 30 June 1962 to 30 June 1987. The letter also confirmed that Turks were to arrange for their client to attend Prentice's office for an interview, and requested that Turks contact Boardman.
28 July 1994
22. Prentice wrote to Turks referring to Turks' advice that their client had income tax returns only since the year ended 30 June 1980, and requesting that Turks arrange to have those delivered to Prentice as soon as possible before the meeting with Boardman and Prentice's solicitor. The letter advised that at the meeting Turks' client would be required to provide Prentice with certain specified information.
16 August 1994
23. Prentice advised the bankrupt of his intention to convene a meeting of creditors on 1 September 1994 to enable him to report on the bankruptcy. The letter required the bankrupt to attend the meeting.
18 August 1994
24. The bankrupt, with Collinge, attended a meeting with Boardman and answered questions.
1 September 1994
25. The bankrupt, with Oomens, attended a meeting with Prentice and Boardman and answered questions by Prentice.
6 September 1994
26. Prentice wrote to Turks purporting to confirm Turks' undertaking to deliver to him the cash books for Aba-Fel for the period commencing 1 July 1992 to date, and noting that Prentice had not yet received them. He requested pursuant to s 77A of the Act that they be delivered within seven days, in default of which he would "apply to the Official Receiver to have the income contribution assessment enforced". Prentice also requested Turks to advise him of the amount of Turks' legal costs since 1 July 1992 in order that Prentice might "complete (his) income contribution assessment of the Bankrupt".
13 September 1994
27. Turks wrote to Prentice advising that Aba-Fel had instructed them not to provide photocopies of the financial records shown to Prentice in the meeting on 18 August 1994.
16 September 1994
28. Prentice wrote to the directors of Aba-Fel requiring Aba-Fel to produce certain specified documents within 21 days.
17 October 1994
29. Turks, on behalf of Aba-Fel, wrote to Prentice producing to him documents listed in an annexure to their letter and advising that there were "some further documents to be produced which our client currently needs for the purposes of bringing its monthly accounting records up to date".
24 October 1994
30. Prentice faxed Turks requesting production of certain books which had been described in the annexure to Turks' letter but not produced, being, in general, current records.
9 November 1994
31. Turks wrote to Prentice observing that the outstanding records were required by Aba-Fel for its "month end procedures" and advising that Aba- Fel had been requested to return the books to Turks with a view to their being produced to Prentice.
11 November 1994
32. (a) Boardman told Ms Rochford of Turks that PPB had finished with a ll
the books and records given to them and that they were ready to be collected.
(b) There was served on Mrs Terry the notice bearing date 3 November 1994 a copy of which is annexure "A" to these Reasons for Judgment.
(c) There was served on The Proper Officer of Aba-Fel a notice also bearing date 3 November 1994 purportedly under s 139ZL of the Act by R J Cruickshanks, Acting Official Receiver, on behalf of Prentice, demanding payment to Prentice of $54,073.50 in respect of "contributions for the assessment period 1st July 1992 to 30 June 1993" or so much of that amount as should be due and payable by Aba-Fel to the bankrupt. Annexed was a copy of the notice from Prentice to the bankrupt dated 6 June 1994 referred to earlier. I was told that an application would be made by Aba-Fel to set aside the notice.
(d) Turks, on behalf of Aba-Fel, wrote to Prentice demanding that the notice dated 3 November 1994 served on it on 11 November 1994 be withdrawn by mid-day on Monday 14 November 1994 and advising that if this did not happen, application would be made to have the notice set aside.
(e) Turks, on behalf of Mrs Terry, wrote to Prentice demanding that the notice dated 3 November 1994 served on her on 11 November 1994 be withdrawn by mid-day on Monday 14 November 1994 and advising that if this did not happen, application would be made to have the notice set aside.
APPLICANT'S SUBMISSIONS
33. The applicant submitted that the notice should be set aside on the following grounds:
(a) In so far as the notice required Mrs Terry "to attend an examination ... to provide information" it was not authorised by either limb of sub-section 77C (1);
(b) In so far as the notice required Mrs Terry "to produce the books and accounting records of Aba-Fel Pty Limited, as trustee for The Terry Family Trust" it was addressed to the wrong person and should have been addressed to "The Proper Officer" of Aba-Fel;
(c) The notice was invalid because of the breadth of the expression "the books and accounting records of Aba-Fel Pty Limited, as trustee for The Terry Family Trust";
(d) The notice was not issued for a proper purpose.
REASONS
34. Section 77C is as follows:
"77C(1) The Official Receiver, by written notice given to any person, whether a bankrupt or not, including any person employed by or in connection with a Department, or an authority, of the Commonwealth, of a State or of a Territory, may require the person:
(a) to give to the Official Receiver such information as the Official Receiver requires for the purposes of the performance of the functions of the Official Receiver or a trustee under this Act; and
(b) to attend before the Official Receiver, or before an officer authorised in writing by the Official Receiver to exercise powers under this paragraph, and:
(i) give evidence; and
(ii) produce all books in the possession of the person;
relating to any matters connected with the performance of the functions of the Official Receiver or a trustee under this Act.
(2) The Official Receiver or authorised officer may require the information or evidence to be given on oath, and either orally or in writing, and for that purpose may administer an oath."
Section 267B prohibits a person, under penalty of imprisonment for up to 12 months, from failing, without reasonable excuse, to comply with a notice under para 77C (1) (a), that is to say, a notice requiring the giving of information to the Official Receiver. Section 267C prohibits under the same penalty the giving of information which is false or misleading in a material particular pursuant to a requirement contained in such a notice. Section 267D imposes a penalty of up to six months' imprisonment for failure to attend before the Official Receiver or authorised officer as required by a notice under sub-s 77C (1). Section 267E provides for the arrest of a person who fails to attend before the Official Receiver or an authorised officer in compliance with a notice under sub-s 77C (1).
These various provisions demonstrate the serious consequences of non-compliance with a valid notice under sub-s 77C (1) and suggest that the sub-section and any purported notice under it should be strictly construed (and see s 267F discussed below).
It is convenient to address in sequence the applicant's submissions noted earlier.
"(a) In so far as the notice required Mrs Terry "to attend an examination... to provide information" it was not authorised by either limb of sub-section 77C (1)".
Sub-section 77C (2) contemplates that the "information" referred to in para 77C (1) (a) may be required to be given, inter alia, (a) orally not on oath, or (b) orally on oath administered by the Official Receiver or authorised officer. This possibility suggests that a notice under the section may require a person to attend upon the Official Receiver to give the information orally on oath. Accordingly, at least a notice which specified the information sought and required that it be given orally to the Official Receiver at the Official Receiver's office would be within the section. However, two questions remain outstanding:
(i) Is the notice invalid because it does not specify the information sought?
(ii) Do the words in the present notice "required to attend an examination" render the notice invalid?
These two questions are related to each other. The word "examination" suggests the asking of a series of questions asked orally which are formulated at the time of asking according to answers received to earlier questions. The most extreme contrast to this is the asking of questions which have been previously determined and of which the recipient of the notice has been advised in advance.
I think that the answer to both questions (i) and (ii) above are "no". It would be an unreasonable construction if the provision did not allow the particularisation of the information sought in the form of questions formulated and asked "on the spot". The alternative would be impractical and unreal: it would require that the notice include a "wave" of questions which, it should be recalled, might be required to be answered orally, and that any further questions arising out of the answers be the subject of a further notice and so on. A more sensible construction is that the section permits questions within the scope of the notice to be put at the time when the recipient of the notice is required to give the information to the Official Receiver. This is, "an examination". Because of lack of foreknowledge of the questions to be asked, the person served with the notice may not be able to answer the questions or some of the questions put in the course of the examination. In that respect, the notice might prove not to be as useful to the Official Receiver as it might have been if it had described with particularity the information sought, such as by listing a series of questions, but the question of the utility of a "general notice" is distinct from the question of its validity. That the construction which I have suggested above is correct is supported by s 267F of the Act. That section provides that a person "attending before the Official Receiver or an authorised officer as required by a notice under sub-section 77C (1)" (emphasis supplied) must not, "without reasonable cause", inter alia: "(a) refuse or fail to be sworn or to make an affirmation; or
(b) refuse or fail to answer a question that the person is required to answer by the Official Receiver or authorised officer, as the case may be; ... ". Of course, para (b) refers to a question directed to the obtaining of information required "for the purposes of the performance of the functions of the Official Receiver or a trustee under (the) Act" (sub-s 77C (1)).
(b) In so far as the notice required Mrs Terry "to produce the books and accounting records of Aba-Fel Pty Limited, as trustee for The Terry Family Trust" it was addressed to the wrong person and should have been addressed to "The Proper Officer" of Aba-Fel; The word "books" is defined in sub-section 5 (1) as including: "... any account, deed, paper, writing or document and any record of information however compiled, recorded or stored, whether in writing, on micro film, by electronic process or otherwise; ..."
Accordingly, it was not argued, and scarcely could be, that "accounting records" were not "books" for the purpose of sub-paragraph (b) (ii) of sub-section 77C (1).
The present application is an application to set aside the notice. Accordingly, the present submission must be no less than that by reason of the fact that the notice is addressed to Mrs Terry rather than to The Proper Officer of Aba-Fel, it is addressed to a person in whose "possession" (within the meaning of sub-para 77C (1) (b)
(ii)) the books of Aba-Fel cannot be. The submission involves questions as to the meaning of "possession" in sub-para 77C (1) (b)
(ii) and as to the position and authority of Mrs Terry within Aba-Fel. These questions were not explored in submissions before me. For this reason and because I will set aside the notice in so far as it calls upon Mrs Terry to produce the books and accounting records for reasons appearing in (c) below, I do not find it necessary to deal with the present submission.
"(c) The notice was invalid because of the breadth of the expression "the books and accounting records of Aba-Fel Pty Limited, as trustee for The Terry Family Trust".
The notice requires Mrs Terry to produce "the books and accounting records of Aba-Fel Pty Limited, as trustee for The Terry Family Trust". The breadth of the description potentially raises two issues: first, an issue of oppressiveness; secondly, an issue of power.
There is no evidence before me of the number or volume of the books and accounting records referred to, of their location or of any difficulty or burden which would be involved in their production. Accordingly, it is not shown by evidence that the notice is oppressive by reason of the breadth of the description, and I am not prepared to infer that it is from nothing more than this. In relation to the second issue, it must be recalled that s 77C authorises the Official Receiver to require production of all books in the possession of a person "relating to any matters connected with the performance of the functions of the Official Receiver or a trustee under this Act." But the notice in question requires production of all "the books and accounting records of Aba-Fel Pty Limited, as trustee for The Terry Family Trust". In my opinion, in two respects the present notice requires more than what the section authorises a notice under it to require. First, the notice is not limited to books and accounting records in Mrs Terry's possession, and requires her to produce all the books and accounting records referred to, wherever they may be, under, it may be noted, a penalty of six months' imprisonment for default: para 267F (c).
Secondly, the description is not limited by reference to the requisite "(relationship) to any matters connected with the performance of the functions of the Official Receiver or a trustee under (the) Act". In this respect it should be noted that the words which occur earlier in the notice, "relating to the income and assets of the bankrupt", qualify the word "information" and do not supply qualification of the books and accounting records required to be produced. See FCT v Australia and New Zealand Banking Group Ltd (Smorgon's case) (1979) 143 CLR 499 at 525 (Gibbs ACJ), 536-8 (Mason J); Clarke v DCT (1989) 89 ATC 4521 (FCA/Spender J) at 4526; Elliott v DCT (1990) 21 ALD 50 (FCA/Burchett J) in which similar issues in relation to notices under s 264 of the Income Tax Assessment Act 1936 (Cth) have been considered.
(d) The notice was not issued for a proper purpose. Like any statutory power, the power conferred by s 77C must be used for a proper purpose. It may well be that a question arises as to why the Trustee would cause the Official Receiver to issue the subject notice when, at about the same time, he was returning books of the Trust to Turks. However, the existence of a query does not establish improper purpose.
CONCLUSION
38. In the result, I think that the notice is valid in so far as it requires Mrs Terry to attend an examination to provide information relating to the income and assets of the bankrupt, but invalid in so far as it requires her to produce the books and accounting records of Aba-Fel as trustee for the Terry Family Trust. It seems clear that the two requirements of the notice are severable: see Elliott v DCT (1990) 21 ALD 50 (FCA/Burchett J), a case on s 264 of the Income Tax Assessment Act 1976 (Cth). An order should be made setting aside the notice in the latter respect only.
The applicant will be directed to bring in short minutes directed to giving effect to these Reasons. There has been success and failure on each side and I would propose that there be no order as to costs, but will hear the parties on costs on the occasion of the adoption of the short minutes of orders, if any one of them wishes to contend for a different result as to costs.
The question of costs will be stood over to Friday 9 December 1994 at 9.30 am. If a party wishes to contend for a result as to costs different from the result that there be no order as to costs, that party must by 5.00 pm on Thursday 8 December 1994, notify my Associate of that fact and supply a submission setting out the form of order sought and argument in favour of that order.
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