Verbiest and Inspector-General in Bankruptcy
[2006] AATA 678
•3 August 2006
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2006] AATA 678
ADMINISTRATIVE APPEALS TRIBUNAL )
) No W2005/378 AND W2006/81
GENERAL ADMINISTRATIVE DIVISION ) Re ADRIAN VERBIEST Applicant
And
INSPECTOR-GENERAL IN BANKRUPTCY
Respondent
DECISION
Tribunal Mr A Sweidan, Senior Member Date3 August 2006
PlacePerth
Decision The Tribunal affirms the decision under review.
.........(Sgd A Sweidan)...........
Senior Member
CATCHWORDS
Bankruptcy Act 1966 Section 163 - Bankruptcy Regulation 16.13A - waiver or remission of fees - Section 283 - realisation charge - remittal - whether applicant can apply for remission - undue hardship
CASES
Ayoub v Inspector-General in Bankruptcy (2003) 70 ALD 513 at 520-521
Bell and Inspector-General in Bankruptcy [2004] AATA 1035
Clark and Inspector-General in Bankruptcy (2004) 2 ABC (NS) 193
Excell and Inspector-General in Bankruptcy [2000] AATA 13 (14 January 2000),
Karapatakis v Inspector-General in Bankruptcy [2003] AATA 923 at [18] to [19]
Lopez v Inspector-General in Bankruptcy [2002] AATA 1198 at paras 54-57
Morgan and IGB [2005] AATA 519
Schneller and Inspector-General in Bankruptcy [2004] AATA 906
Re Scott Pty Ltd and Minister for Primary Industries and Energy (1994) 35 ALD 157
Shea v Inspector-General in Bankruptcy [2003] AATA 351
Stanley Faulkner v Inspector-General in Bankruptcy [1998] AATA 632
REASONS FOR DECISION
3 August 2006 Mr A Sweidan, Senior Member BACKGROUND
1. These two matters were heard together on 5 July 2006. At the hearing the applicant appeared on his own behalf and the respondent was represented by Mr Michael Murray of the Australian Government Solicitor.
W2005/378
2. Dealing first with matter W2005/378 the relevant facts are set out in a Statement of Facts and Contentions of the respondent which also contains a Statement of Issues and it is convenient to set those out in full as follows:
“Facts
3. On 3 March 1998 the applicant was made bankrupt under the Bankruptcy Act 1966 (‘the Act’) on his own debtor’s petition. The Official Trustee in Bankruptcy became trustee of the 1998 bankrupt estate and the Official Receiver in Bankruptcy in Sydney on behalf of the Official Trustee (‘the Official Receiver’) administered the estate. The applicant had been bankrupt before, in 1992, and had entered an arrangement under Part X of the Act in 1986.
4. Estimated fees of the Official Receiver in the amount of over $8,600 are payable. There is also an amount payable of $3,332.04 in realisations charge under the Bankruptcy (Estate Charges) Act 1997.
5. The applicant was discharged from bankruptcy on 11 April 2005.
6. In a letter to the respondent from the solicitors for the applicant - H Kremer & Co - dated 21 April 2005, a request was made for the fees to be remitted. By letter of 30 June 2005, the respondent refused the application.
7. On 27 October 2005, by application of that date, the applicant applied to this Tribunal to review the respondent’s decision of 30 June 2005. By consent dated 8 November 2005, the respondent consented to that being filed out of time and by Tribunal direction dated 22 November 2005, time was extended.”
(It should be noted here that the respondent filed evidence at the hearing as to the present circumstances of the administration of the bankrupt estate including that the applicant has been able to live in his home since his bankruptcy in 1998, there being insufficient equity at the time in that property (taking into account a mortgage) for the Official Trustee to realise any equity. It is common cause that the value of the property is now higher such that on sale, there will be surplus funds payable to the applicant after discharge of the mortgage.)
Issues
Fees
8. Section 163 of the Act provides for the remuneration of the Official Trustee, which is to be calculated as prescribed by the regulations. Division 2 of Part 16 of the Bankruptcy Regulations provides for fees to be taken by the Official Receiver. These fees are calculated on a percentage basis, not on a fee for service or time basis. The percentage calculation is based on the net “amount realised” in the bankruptcy, as defined: see Bankruptcy Regulation 16.07A. However, if there is an annulment, the Official Trustee must be satisfied that all of the ‘bankrupt’s debts’ have been paid in full: s 153A(1) of the Act. Those debts include ‘the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee’: s 153A(6). The fee payable is the greater of $4,500 or the fee calculated under Reg 16.07A(2).
9. The amount of fees referred to in paragraph 2 above is payable on account of the Official Trustee’s fees according to Bankruptcy Regulation 16.07A. Bankruptcy Regulation 16.13A provides:
“REG 16.13A Waiver or remission of fees by Inspector-General
(1) Subject to subregulation (2), the Inspector-General may waive or remit the whole or part of any fee.
(2) A fee may only be waived or remitted, whether wholly or in part, if the Inspector-General is reasonably satisfied that:
(a) payment of the fee by the person liable to pay it has imposed, or would impose, undue hardship on the person; or
(b) because of other exceptional circumstances, it is proper and reasonable to do so.
(3) For paragraph (2) (a), undue hardship means hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy.
(4) A decision under subregulation (1) must be notified in writing to:
(a) the person concerned; and
(b) except where the fee is payable to the Inspector-General — the officer to whom the fee is or, but for the waiver or remission, would be payable.
(5) In this regulation:
fee means a fee payable under a provision, other than regulation 16.04, of this Division.”
10. The question that was for consideration by the respondent under Regulation 16.13A was as follows: whether the respondent was reasonably satisfied that payment of the fee by the person liable to pay it has imposed, or would impose undue hardship, that is, ‘hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy’, or, because of other exceptional circumstances it was reasonable to remit the fee.
11. In respect of the question of who is liable to pay the fee, the fee is payable by the bankrupt estate, not by the applicant. However, where a dividend of 100 cents in the dollar is expected to be paid by the bankrupt estate of the applicant, it has been held by this Tribunal that it is the applicant who is the ‘person liable to pay it’ under Regulation 16.13A(2)(a) and is the proper applicant: Clark and Inspector-General in Bankruptcy (2004) 2 ABC (NS) 193.
12. As the applicant is the relevant ‘person’, the issue is whether the applicant can show payment of the fee ‘would impose undue hardship’ or whether, ‘because of other exceptional circumstances, it is proper and reasonable’ to waive or remit the fee, under Regulation 16.13A(2).
Respondent’s Contentions
Fees
no undue hardship
13. There is no undue hardship shown. That term is defined in Bankruptcy Regulation 16.13A(3). That sub-regulation changed the pre-existing law in that there was previously no definition of ‘undue hardship’. The addition of Regulation 16.13A(3) gives effect to the decision of this Tribunal in Stanley Faulkner v Inspector-General in Bankruptcy [1998] AATA 632; (see the Explanatory Memorandum to the Bankruptcy Amendment Regulations 2002 (No 1), Statutory Rules 2002 No 255, item 32). The Explanatory Memorandum says, in part, that in that decision
“(t)he Tribunal found that ‘undue hardship’ in the context of (former) regulation 16.10 is hardship that can be characterised as more ‘unusual, uncommon or exceptional’ than that of any other person who has been through bankruptcy”.
14. The hardship that the applicant suffers is not “undue” in that it is not “hardship that is unusual and exceptional in comparison to the hardship arising in the normal course of bankruptcy”.
15. Those words acknowledge that undue hardship may be suffered by an applicant as a result of that person’s bankruptcy, financial or otherwise. On bankruptcy, all divisible property of the bankrupt passes to his or her trustee in bankruptcy and property acquired during the course of the bankruptcy vests in the trustee as after-acquired property: see section 58 of the Bankruptcy Act. Bankruptcy can also involve the liability to make contributions from the bankrupt’s income. However, the hardship that must be shown before the respondent can be satisfied in accordance with Regulation 16.13A is undue hardship that is both “unusual” and “exceptional” when compared with the normal hardships arising from bankruptcy.
16. The applicant suffers from health and financial difficulties. However his health problems have existed independently of the bankruptcy and his financial difficulties exist as a result of his health and consequent limited income. These are not ‘unusual and exceptional circumstances’ in comparison with many persons who have been bankrupt. In fact, his hardship is tempered by the fact that he has been relieved of all his financial liabilities existing before bankruptcy.
17. In addition, the applicant has been able to live in his home since his bankruptcy in 1998. The value of the property has increased and on any sale, there would be surplus funds payable to the applicant after discharge of the mortgage.
18. In the case of the applicant, it is a matter of a person who has been through bankruptcy, and who is living on a pension and suffering difficult health and other circumstances, as the Tribunal described the applicant in Faulkner v Inspector-General in Bankruptcy at [32]. The difference in this case is that there is a reasonable surplus of money payable to the applicant.
19. The applicant is on a disability support pension. However, in Ayoub v Inspector-General in Bankruptcy (2003) 70 ALD 513 at 520-521, the Tribunal would not remit the fees despite the finding that the applicant ‘was on disability support pension, and therefore assessed as unable to work at least for a certain time’ (at para 50). In that case the Tribunal said (at para 64):
“There is also no doubt that anyone involved, even peripherally with bankruptcy, and a person eligible for disability support pension has problems and suffers some hardship”
no other exceptional circumstances
20. There are no other exceptional circumstances shown by the applicant. The applicant’s debts were extinguished by his bankruptcy to his benefit; cf Shea vInspector-General in Bankruptcy [2003] AATA 351 where there was only partial financial relief (at para 67); while his bankruptcy has been protracted, this was in effect to his benefit: cf Lopez vInspector-General in Bankruptcy [2002] AATA 1198 at paras 54-57.
General
21. In this case, it is contended that it is relevant to consider that the legislative scheme of the relevant provisions of the Act and Bankruptcy Regulations and the Bankruptcy (Estate Charges) Act is to provide funding for the operations of the Insolvency and Trustee Service Australia (ITSA), and remuneration for the services it provides through the Official Trustee in Bankruptcy, and funding for the administration of the personal insolvency system in Australia.
22. In that regard, the decision of the respondent must be made in accord with the scope and purpose of this legislation but also on the facts of each case: Re Scott Pty Ltd and Minister for Primary Industries and Energy (1994) 35 ALD 157. The Bankruptcy Act provides for remuneration of the Official Trustee in order to fund the operations of that office. That remuneration is secured from bankrupt estates with moneys obtained from realisations of assets, as a first charge upon those assets: see section 109(1)(a). Similarly, the Bankruptcy (Estate Charges) Act provides for funding for ITSA and the administration of the personal insolvency system.
23. In respect of the Official Trustee’s fees, a private trustee in bankruptcy may secure his or her remuneration from realisations, including on a commission basis, also as a first charge on the estate: see sections 109, 161B and section 162 of the Act. There is no right of waiver or remission in respect of the remuneration of a private trustee and it is only in circumstances as prescribed that the Official Trustee is not to receive a fee. Given the purpose of the remuneration regime under the Act, to remunerate the Official Trustee, any legislative exception to that regime should be read in accord with the fact that the Official Trustee is entitled to be remunerated, except as defined. Only if the circumstances as defined in Regulation 16.13A(2) apply, is the Official Trustee to be unremunerated, or remunerated to a lesser amount, in favour of the bankrupt of the former bankrupt: see Karapatakis v Inspector-General in Bankruptcy [2003] AATA 923 at [18] to [19].”
W2006/81
24. In regard to matter W2006/81 the respondent also filed a Statement of Facts and Contentions which includes a Statement of Issues and again it is convenient to set those out in full here:
“Facts
25. The facts as set out in the statement of facts and contentions in W2005/378 are relied upon and are not repeated.
26. As stated in the respondent’s facts and contentions in W2005/378, there is an amount payable of $3,332.04 in realisations charge under the Bankruptcy (Estate Charges) Act 1997: see T4.
27. By a letter (undated) from the applicant he applied for remission of the realisations charge. That attached various documents in support of his application.
28. On 22 February 2006 the respondent decided to reject that application for remission.
29. By application dated 7 March 2006 filed 21 March 2006 the applicant has applied to the Tribunal to review that decision.
30. The applicant was discharged from bankruptcy on 11 April 2005.
31. Evidence will be filed (statement of Heljo Cameron made 30 June 2006 which was duly filed) as to the present circumstances of the administration of the bankrupt estate including that the applicant has been able to live in his home since his bankruptcy in 1998, there being insufficient equity in that property (taking into account a mortgage) for the Official Trustee to realise any equity. The value of the property is now higher such that on sale, there will be surplus funds payable to the applicant after discharge of the mortgage.
Issues
The realisations charge
32. The bankrupt estate is required to pay the realisations charge under the Bankruptcy (Estate Charges) Act 1997. That charge can be remitted under section 283 of the Bankruptcy Act.
33. The realisations charge may only be remitted by the respondent if it is ‘payable but has not been paid’: Clark and Inspector-General in Bankruptcy [2004] AATA 379 at [28]; (2004) 2 ABC (NS) 193 at 197; Shea and Inspector-General in Bankruptcy N2003/1740 15 June 2004; Schneller and Inspector-General in Bankruptcy [2004] AATA 906. Here, the charge has not been paid: see the statement of Heljo Cameron made 30 June 2006.
34. Only ‘the person liable to pay the charge’ may apply for remission - s 283(2)(a). Under section 6 of the Bankruptcy (Estate Charges) Act, the person liable to pay the charge is the trustee of the bankruptcy, in this case the Official Trustee, not the applicant: see Bell and Inspector-General in Bankruptcy [2004] AATA 1035 at [44]; cf Morgan and IGB [2005] AATA 519. The issue is whether the applicant can apply for remission at all.
35. If the Tribunal finds he can, the question is then whether the applicant can show undue hardship and that it is appropriate to remit the amount.
Contentions
36. The respondent contends that the applicant has no standing to apply for remission.
37. There are two relevant AAT cases on s 283. In Bell and Inspector-General in Bankruptcy [2004] AATA 1035, the AAT said:
“Section 283(1) of the Act confers on the Inspector-General a discretion to remit an amount of the realisations charge if the Inspector-General thinks that the failure to remit the amount would cause “a person” hardship. The words “a person” would literally extend to any person, including in particular the bankrupt, in circumstances where creditors received 100 cents in the dollar, and the surplus available to the bankrupt would accordingly be reduced by the amount of the realisations charge. This interpretation appears to have been adopted in Re Excell and Inspector-General in Bankruptcy (supra) and in Re Ayoub and Insolvency & Trustee Service Australia (Inspector-General in Bankruptcy) (2002) 70 ALD 513, where the Tribunal examined the question of whether the bankrupt would be caused hardship.
However, s 283(2) then refers to the procedure applicable to the discretion to remit which is provided for in s 283(1). Section 283(2)(a) provides in effect that it is “the person liable to pay the charge” who may apply for the remission. That person is the trustee of the estate of the bankrupt (s 6 of the Estate Charges Act), and in this case that person is the Official Trustee. Further, s 283 is contained within Part XV of the Bankruptcy Act, and this Part contains provisions relating (inter alia) to the Estate Charges Act. The expression “realisations charge” is defined in s 278 of the Bankruptcy Act to mean in effect the charge imposed under that Act. The Estate Charges Act does not impose any liability on the bankrupt to pay the realisations charge. Further, s 281 of the Bankruptcy Act imposes a liability for a late payment penalty on the person liable to pay the realisations charge, and once again, that person is the trustee, not the bankrupt.
Counsel for the respondent also drew our attention to the Explanatory Memorandum for the Bankruptcy Amendment Bill 1996, which introduced s 283. This Memorandum says in respect of the then proposed s 283 that; “(i)t will only be in exceptional circumstances that it would be appropriate (to remit the amount) such as in the case of a genuine and unavoidable error on behalf of the trustee.” This reference to the position of the trustee in conjunction with the scheme of the legislation, indicates that the section is intended to refer to hardship of the trustee, not the bankrupt.In the present matter, it has not been suggested that there is any hardship on the part of the Official Trustee, and of course this would be irrelevant to the position of Ms Bell.
In any event, even if (contrary to our interpretation) s 283(1) does apply to hardship of the bankrupt, we find that there is no hardship to Ms Bell in the present case if the realisations charge is not remitted. ...”
38. But in Morgan & IGB [2005] AATA 519, the AAT differed:
“In respect of the question of remission of the realisations charge, the question arises as to whether Mr. Morgan is entitled to the benefit of any remission and whether undue hardship relates to him or whether it refers to the Official Trustee.
Subsection 283(2)(a) of the Act provides that it is “the person liable to pay the charge” who may apply for remission. In this case that person is the Official Trustee, who made the application, purportedly on behalf of Mr. Morgan on 6 February 2004.
Subsection 283 of the Act confers on the Inspector-General a discretion to remit an amount of the realisations charge if the Inspector General thinks that the failure to remit the amount would cause “a person undue hardship”; and “it is appropriate to remit the amount”.
In Bell and Inspector-General in Bankruptcy [2004] AATA 1035 (30 September 2004), the Tribunal, Deputy President D.G. Jarvis and Mr. D.J. Trowse, decided that section 283(1)(a) is intended to refer only to the hardship of the trustee. …
However, in the cases of Excell and Inspector-General in Bankruptcy [2000] AATA 13 (14 January 2000), Deputy President B.M. Forrest, and Ayoub and Insolvency and Trustee Service Australia (Inspector-General in Bankruptcy) (2002) 70 ALD 513, Senior Member G. Ettinger, the Tribunal adopted the position that the term “a person” in s.283(1)(a) extends to any person, including the bankrupt.
The cases of Exell and Ayoub involved circumstances where creditors received 100 cents in the dollar and the surplus available to the bankrupt was accordingly reduced by the amount of the realisations charge. In those cases the Tribunal assessed the question of hardship in relation to the bankrupt, not the Official Trustee, in relation to the possible remission of the realisations charge
I must admit that I do not find section 283 easy to interpret. I find it hard to envisage circumstances in which failure to remit the realisations charge would cause undue hardship to the Official Trustee. In circumstances where creditors receive 100 cents in the dollar remission of the realisations charge would automatically flow through to the bankrupt. It seems to me that the only person who is potentially affected by the charge in this case is the bankrupt.
However, it may be that section 283 does not have any practical effect in cases such as Mr. Morgan’s, but applies in different circumstances.
With respect I prefer the Tribunal’s interpretation of s.283 in Excell and Ayoub. That interpretation seems to me to give the section a more practical effect than the interpretation suggested in Bell.”
39. The respondent contends that the interpretation in Bell is correct. The wording of the provision shows it is meant to assist situations of trustee hardship such as the case where a trustee, through some internal fraud of an employee, may still be liable for the charge unless remitted.
40. If the Tribunal finds that the applicant can apply for remission, it is contended that there is no undue hardship and the contentions in W2005/378 are relied upon.
41. As well, it must be shown that it is ‘appropriate’ to remit the amount. The charge is imposed on all bankruptcies. Unless there is some particular unusual circumstance, it will rarely be appropriate for the charge to be remitted, even if undue hardship is shown. Some additional element above undue hardship must be shown.”
DECISION
Undue Hardship
42. Leaving aside the question of the applicant’s standing to apply for remission of the realisations charge (as to which see further below) the issue common to both of the applicant’s applications is the question of “undue hardship”. The applicant gave evidence of various health problems as well as financial difficulties. The applicant receives a Disability Support Pension.
43. The Tribunal finds in that regard that the applicant has not established either undue hardship or any other exceptional circumstances. The Tribunal notes particularly in this regard that due to the increase in the value of the applicant’s property on sale there will be surplus funds payable to the applicant after discharge of the mortgage, contrary to the usual position in bankruptcy.
Applicant’s Standing
44. With regard to the question of the applicant’s standing to make the application for remission of the realisation charge there are a number of conflicting Tribunal decisions as set out in the respondent’s Statement of Contentions in W2006/81 including the two recent decisions in Bell and in Morgan. The latter decision followed earlier decisions of the Tribunal in Excell and Ayoub.
45. In the cases of Morgan, Excell and Ayoub the Tribunal adopted the position that the term “a person” in section 283(1)(a) of the Bankruptcy Act extends to any person, including the bankrupt. In the Bell matter the Tribunal held, for the reasons set out in that decision, that the term could only apply to the trustee and not the bankrupt.
46. I am of the view that the decisions in Morgan, Excell and Ayoub reflect the intention of section 283 and are to be preferred over the decision in Bell and I accordingly hold that the bankrupt i.e. the applicant in W2006/81 had standing to apply for remission. However, as indicated above I am of the view that no remission is warranted.
47. In the circumstances the Tribunal affirms the decisions under review in both matters. W2005/378 and W2006/81.
I certify that the 47 preceding paragraphs are a true copy of the reasons for the decision herein of Mr A Sweidan, Senior Member
Signed: ..........(Sgd S da Motta)..............................
AssociateDate of Hearing 5 July 2006
Date of Decision 3 August 2006
Representative for the Applicant Self representedRepresentative for the Applicant Mr M Murray
Australian Government Solicitor
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