Vrisakis v Director General, Department of Services, Technology and Administration

[2010] NSWADT 147

CITATION:	Vrisakis v Director General, Department of Services, Technology and Administration [2010] NSWADT 147
DIVISION:	General Division
PARTIES:	APPLICANT Paul Emil Vrisakis RESPONDENT Director-General, Department of Services, Technology and Administration (NSW Fair Trading)
FILE NUMBER:	093220
HEARING DATES:	17 November 2009
SUBMISSIONS CLOSED:	1 December 2009
DATE OF DECISION:	11 June 2010
BEFORE:	Grant Y - Judicial Member
LEGISLATION CITED:	Property Stock and Business Agents Act 2002 Administrative Decisions Tribunal Act 1997 Property, Stock and Business Agents Amendment Act 2006 Licensing and Registration (Uniform Procedures) Act 2002
CASES CITED:	Brandt v Office of Fair Trading [2005] NSWADT 26 Cross v The Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69 (31 March 2005) Hinde v Commissioner for Fair Trading [2008] NSWADT 219 Clark v Commissioner of Fair Trading [2004] 273 Drake v Minister for Immigration and Ethnic Affairs [1979] AATA 179 Davidson v Commissioner for Fair Trading [2004] NSWADT 200 McDonald v Commissioner for Fair Trading [2004] NSWADT 124 Cross v Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69 Saglimbeni v Commissioner for Fair Trading, NSW Office of Fair Trading [2008] NSWADT 1 Jones and Anor v Commissioner for Fair Trading, NSW Office of Fair Trading [2008] NSWADT 140 (16 May 2008)
REPRESENTATION:	APPLICANT A Murrell, solicitor RESPONDENT Ms Walsh, solicitor
ORDERS:	The decision under review is affirmed.

REASONS FOR DECISION

1 The Applicant first obtained a Real Estate Agent’s Licence on 19 September 1990 under the Property Stock and Business Agents Act 2002 (“the Act”)

2 On 19 June 1998 the Applicant was declared bankrupt and on 10 November 1999 the Applicant was discharged from that bankruptcy.

3 On 4 August 2008 the Applicant was declared a bankrupt and remains undischarged as at this point in time.

4 On 6 March 2009, the Applicant completed an Application for a Real Estate Agent’s Licence pursuant to the Act. The licence was due for renewal on 8 March 2009. On 6 March 2009 the front page of the application for renewal was received by facsimile at the Office of Fair Trading. On 11 March 2009 the Office of Fair Trading received the original application for renewal of a Real Estate Agent’s Licence together with a fee of $304.

5 On 16 June 2009 the Application was refused on the basis that the Applicant was an undischarged bankrupt and the Delegate of the then Commissioner was not prepared to certify that all reasonable steps had been taken by the Applicant to avoid the bankruptcy, and therefore rejected the application pursuant to the operation of subsection 16(1A)(a) of the Act.

6 By a facsimile dated 7 July 2009, the Applicant sought a Request for an Internal Review.

7 This was followed by the original letter which was received by mail on 9 July 2009 at the Respondent’s offices.

8 On 17 July 2009 a Delegate of the Respondent affirmed the original decision to refuse the Application for Renewal of a Real Estate Agent’s Licence made by the Applicant, Paul Emil Alexander Vrisakis.

9 From 19 September 1981 until 15 September 1990 the Applicant held a Real Estate Certificate.

10 From 9 March 1990 to 8 March 2009 the Applicant has held a Real Estate Licence.

11 From 19 June 1998 until 10 November 1999 the Applicant was bankrupt.

12 Between 2000 and 2006 the Applicant was acting as a Real Estate Consultant. The Applicant did not lodge income tax returns during this period.

13 The exact date the Applicant lodged returns is not clear but in evidence before the Tribunal he indicated it was in November/December 2007.

14 For the period 30 June 2000 to 30 June 2006 the Applicant accumulated unpaid income tax, general interest charges and GST amounting to $605,591.

15 In late 2007 the Applicant was informed of the intention of the Australian Tax Office (“ATO”) to file a Bankruptcy Notice on the Applicant.

16 On 13 February 2008 a Controlling Trustee, Christopher Palmer, was appointed.

17 On 7 March 2008 a Personal Insolvency Agreement (“PIA”) was proposed by the Controlling Trustee for the Applicant.

18 On 19 March 2008 a meeting took place between the Applicant’s creditors at which the PIA was refused. The Minutes of that meeting noted the following:

In reply the Applicant stated that he was divorced in 1998 or 1999.
Ms Federico, a proxy of the Deputy Commissioner for Taxation:

“asked why it was only recently that the debtor had filed his tax returns for the years 2000 to 2006. The debtor said that the destruction of his records referred to earlier in the meeting caused the delay in the preparation of his tax returns”.

Ms Mariza Federico noted that the debtor has certain outstanding Activity Statements, together with his 2007 Income Tax Return. The Debtor advised that his 2007 Return should be completed next month.
Ms Mariza Federico asked the debtor if, prior to the lodgement of his tax returns he was aware of the amount outstanding to the Deputy Commissioner of Taxation. In reply, the debtor said no, because he had not lodged his returns (see page 3 of the Minutes).

The offer in the PIA was 7.84 cents in the dollar.

Ms Federico advised that “the offer is too low, given the amount of the debt and the period that the debt relates to”.

19 Continuation of the meeting of creditors took place on 9 April 2008. The minutes of the meeting noted the following:

Ms Federico read the decision of the Deputy Commissioner of Taxation to reject the offer as set out in the amended PIA (12.79 cents in the dollar) because:

i)“She was concerned that the liability to the DCT may increase because there are a number of outstanding returns”.

ii)“The 2007 income tax return had not been completed and lodged”.

iii)“The debtor advised that his accountant is in the process of preparing the outstanding BAS returns and his 2007 income tax return”.

iv)The debtor undertook to lodge all outstanding returns within 21 days (there is no evidence that this has been complied with).

20 On 4 August 2008, the Applicant was declared bankrupt.

21 On 6 March 2009, the Applicant lodged an application for renewal of his Real Estate Agent’s Licence.

22 On 16 June 2009, New South Wales Fair Trading refused the application on the basis the Applicant was an undischarged bankrupt.

23 On 17 July 2009, New South Wales Fair Trading conducted an internal review at the request of the Applicant, which affirmed the original decision.

Relevant Legislation

24 Section 3(1) of the Act defines a Real Estate Agent as follows:

“ Real estate agent ” means a person (whether or not the person carries on any other business) who, for reward (whether monetary or otherwise), carries on business as an auctioneer of land or as an agent:

a)for a real estate transaction; or

b)for inducing or attempting to induce or negotiating with a view to inducing any person to enter into, or to make or accept and offer to enter into, a real estate transaction or a contract for a real estate transaction, or

c)for the introduction, or arranging for the introduction of a prospective purchaser, lessee or licensee of land to another licensed agent or to the owner, or the agent of the owner of land, or

d)collecting rents payable in respect of any lease of land and otherwise providing property management services in respect of the leasing of any land, or

e)for any other activity in connection with land that is prescribed by the Regulations for the purposes of this definition,

but does not include a person who carries on business as an auctioneer or agent in respect of any parcel of rural land unless the Regulations otherwise provide.”

25 Section 8(1)(a) of the Act provides that a person cannot act or carry on the business of a real estate agent, unless the person is the holder of a real estate agent’s licence.

26 Section 14(1) of the Act provides:

“14 Eligibility for licence or certificate of registration

1)A natural person is eligible to hold a licence only if the Director-General is satisfied that the person:

a)is at least 18 years of age, and

b)is a fit and proper person to hold a licence and each person with whom the person is in partnership in connection with the business concerned is a fit and proper person to hold a licence, and

c)has the qualifications required for the issue of the licence, and

d)is not a disqualified person, and

e)has paid such part of any contribution or levy payable under Pt 10 (Compensation Fund) as is due and payable on the granting of the licence.”

27 Section 16(1A) of the Act provides, in part:

“16 (1A) Disqualified persons

(1A) A person is also a disqualified person for the purposes of this Act (except for the purposes of eligibility to hold a certificate of registration) if the person:

a)is an undischarged bankrupt,

b)at any time in the last three years was an undischarged bankrupt, applied to take the benefit of any law for the relief of bankrupt or insolvent debtors, compounded with his or her creditors or made an assignment of his or her remuneration for their benefit, or

c)...”

28 Section 16(2B) and (2D) of the Act provides, in part:

“(2B) The Director-General may exempt a person from the operation of subsection (1A)(a), (b) or (c) by:

(a) certifying, in the case of exemption from subsection (1A)(a) that the Director-General is satisfied that the person took all reasonable steps to avoid the bankruptcy concerned, or

...

(2D) In determining for the purposes of subsection (2B) or (2C) what reasonable steps could have been taken by a person to avoid a particular outcome, the Director-General is to have regard to the steps that could have been taken by the person from the time that the financial difficulties that gave rise to the outcome first arose.”

29 Section 17(2) of the Act states that Part 2 of the Licensing and Registration (Uniform Procedures) Act 2002 (“the Uniform Act”) applies to and in respect of a licence. Section 12(4) of the Uniform Act provides that an application for a licence must contain such information as is required by the relevant application form or as is otherwise required by or under the relevant licensing legislation.

30 Section 18 of the Uniform Act states that a licensing authority may grant the application, either unconditionally or subject to such conditions as are authorised or required by the relevant licensing legislation, or refuse the application.

31 Section 19 of the Act states that an application must not be granted if the applicant is ineligible to be granted a licence.

32 Section 26 of the Act provides:

“26 Effect of applying for restoration of expired licence

(1) – (5) Repealed.

(6) If an application for the restoration of an expired licence or certificate of registration is duly made:

(a) Anything done by the holder of the expired licence or certificate of registration between its expiry and the determination of the application for restoration (whether the application is granted or refused) is taken to have been done as the holder of a licence or certificate of registration, except for the purposes of s.8(1), 9(1) and 10, and

(b) If the application is granted, the restored licence or certificate of registration is taken to have had effect from the expiry of the expired licence or certificate of registration (and is to be expressed to take effect accordingly).

The Commissioner’s Case

33 The Respondent relies on the material filed in these proceedings pursuant to s.58 of the Administrative Decisions Tribunal Act 1997 (“the ADT Act”). The Commissioner further tendered an extract from the Second Reading Speech of the New South Wales Legislative Assembly, Hansard, on the Property, Stock and Business Agents Amendment Bill extract from New South Wales Legislative Assembly, Hansard and Papers, Tuesday, 8 November 2005 and drew the Tribunal’s attention to the following paragraph:

“The amendments proposed in the Bill make it clear that the Commissioner should consider the steps taken by the Applicant to avoid bankruptcy when financial difficulties first arose in the business, and not just consider the steps taken once bankruptcy, liquidation or administration became imminent . For example, a person should not be granted the discretion based solely on their actions after they have been served with a bankruptcy notice, because this would ignore the financially irresponsible behaviour which led to the serving of the notice. In addition, the Commissioner’s discretion to grant a licence to an undischarged bankrupt does not currently appear to apply consistently to a director or person concerned in the management of a failed company. But there is no reason why this discretion should not apply equally. It is therefore proposed to amend the Act to ensure that the Commissioner’s discretion applies equally to an undischarged bankrupt as well as to people involved in the management of an externally administered corporation.”

34 The Respondent further tendered a chronology of events concerning the applicant from 10 September 1981 through to 17 July 2009, which impact on the consideration of the matter before the Tribunal. The Commissioner relies on the history of events, in particular the fact that the Applicant had been declared a bankrupt on 19 June 1998 and was not discharged until 10 November 1999. Further, the Commissioner drew the Tribunal’s attention to the fact that the Applicant had not filed tax returns from 30 June 2000 to 30 June 2006 and accordingly, was subsequently declared bankrupt for a second time on 4 August 2008.

35 The Respondent filed and served written submissions on 1 December 2009.

36 The Commissioner’s delegate referred to the test enunciated in Brandt v Office of Fair Trading [2005] NSWADT 26, and the issues the Tribnunal is required to consider pursuant to the ‘reasonable steps’ test:

37 It was the Commissioner’s submission that the applicant should have known between 2000 and 2006 that there was a prospect of a bankruptcy order by virtue of his failure to lodge returns and pay tax for that period. In particular, it was the Respondent’s submission that from the date of the Applicant’s failure to lodge his 2000/2001 tax return, the Applicant ought to have known that bankruptcy was a possibility.

38 The Respondent further submitted that the fact that the Applicant had previously been a bankrupt in 2008 should have rendered him more vigilant and experienced in taking the necessary steps to avoid incurring these debts. The Respondent drew the Tribunal’s attention to the observations in Brandt v Office of Fair Trading [2005] NSWADT 26, in which it was said:

“24. In my view it is highly significant that Mr Brandt has been bankrupt on two earlier occasions. In those circumstances it is reasonable to assume that he would have had a heightened awareness of issues relating to bankruptcy.”

39 The Respondent further submitted that the Applicant should have been aware that bankruptcy was a possibility, given that he failed to pay his statutory obligations pursuant to the Income Tax Act from 2000 to 2006 and while he was not aware of the specific amount of his taxation liability he was aware that the liability was increasing with each successive year of non-payment. The Respondent referred to the case of Cross v The Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69 (31 March 2005) which recognized that a failure to pay the company’s statutory obligations should give rise to an awareness that liquidation is a possibility.

40 The Respondent further noted that the Applicant was a man of considerable business experience, having been licensed since 1990 and accordingly, he should be aware of the consequences of an ongoing tax liability.

41 When considering what steps the Applicant had taken, the Respondent submitted that, as a consequence of filing his tax return in late 2007, and subsequently receiving an assessment, the Applicant would have been aware of an existing liability. Furthermore, the Respondent submitted that while the Applicant may have been unaware of the precise amount of the tax liability, he would nevertheless have been aware of the size and nature of the liability, given his earning s during that period.

42 The Respondent suggested that the Applicant’s explanation for not filing returns between 2000 and 2006, being the destruction of tax records in 2000, did not prevent the Applicant from subsequently lodging his tax return in 2007 and accordingly, similar steps could have been taken in the preceding six years.

43 With respect to the Personal Insolvency Agreement (PIA) proposed by Christopher Palmer, the Controlling Trustee for the Applicant, the Respondent submitted that Ms Federico, a proxy of the Deputy Commissioner for Taxation had recorded in the minutes of the meeting on 19 March 2008, that the offer of 7.84 cents in the dollar was too low, given the amount of the debt and the period that the debt related to. It was the Respondent’s submission that even had this PIA been entered into, it would have been too late to constitute reasonable steps to avoid the bankruptcy as soon as the Applicant had been made aware of the possibility of bankruptcy.

44 The Respondent submitted that there was no evidence that the Applicant had taken steps at a sufficiently early stage to prevent his bankruptcy. The Respondent says that with a tax debt of $600,000 odd the Applicant would have been earning a significant amount and would have known that he was going to have to pay tax on that amount. The Respondent referred to the decision of Hinde v Commissioner for Fair Trading [2008] NSWADT 219, where the applicant was a real estate agent and solicitor, and took no steps to provide for his ongoing liabilities to the Taxation Office and his Bank, but operated in expectation that he would earn commissions on property sales.

45 The Respondent further submitted that the Applicant’s contention that he was relying on commissions from the sale of an aged care facility in 2006 was too late and that provision should have been made earlier for the ensuing tax debt.

46 The Applicant relied on the following material:

(i)Letter from controlling trustee, Christopher Palmer dated 9 March 2009, advising that the Applicant did not operate a trust account and attaching the Notice to Creditors of Bankruptcy dated 25 August 2008.

(ii)Letter from Mr Tony Murrell, solicitor, dated 5 March 2009 advising that the Applicant’s financial affairs were under administration and that he does not operate a trust account; advising that if the Applicant’s licence was not renewed he would have no means of earning a living.

(iii)A copy of the proposed Part X Personal Insolvency Agreement of Paul Emil Alexander Vrisakis dated 7 March 2008 (pages 43-77 of the s.58 documents lodged on 15 September 2009).

(iv)Affidavit of Christopher John Palmer, controlling trustee, sworn 14 October 2009, attached to which were Minutes of Meeting of the Creditors of the Applicant held on 19 March 2008 and 9 April 2008.

(v)Written submissions filed and served on 2 December 2009.

47 The Applicant, Paul Vrisakis, also gave sworn evidence before the Tribunal.

48 The Applicant submitted that as he had taken all reasonable steps to avoid the bankruptcy or financial difficulties concerned, that pursuant to s.16(2B) of the Act, the Director-General should exempt him from the operation of s.16(1A) of the Act.

49 The Applicant further submitted that the time at which the financial difficulties that gave rise to the outcome first arose was when the Applicant was made bankrupt and until such time the debt could not be said to have crystallised, nor could the Applicant be said to have been aware of the prospect of a bankruptcy or financial difficulties.

50 Accordingly, it was the Applicant’s submission that he had taken reasonable steps to avoid the bankruptcy from the time the financial difficulties that gave rise to the outcome first arose and accordingly, came within the provisions of s. 16(2D). The Applicant cited the test applied by President O’Connor DCJ in Clark v Commissioner of Fair Trading [2004] 273 which applied s.16 in its pre-existing form prior to the last amendment in March 2007. In particular, the Applicant referred to the following passage of his Honour’s judgment at [10]-[11]:

“10. It has expressed the following views as to the approach to be taken in examining the question of whether the licence holder took ‘reasonable steps’ to avoid the bankruptcy or insolvency:


i)A general inquiry into the wisdom or otherwise of the original financial dealings that ultimately ended in the bankruptcy or insolvency is not contemplated by the Act. The point at which the inquiry commences is when the Applicant was “faced with the possibility” of bankruptcy or insolvency ( Davidson at [20]) or was ‘aware’ or ‘should have been aware’ ( McDonald at [21]) of that possibility . The focus is the steps taken to avoid the relevant event (see Smith at [17]) – in cases of the present kind, administration, and later liquidation.

ii)Subject to (i), in assessing reasonableness the Tribunal must examine all the relevant facts and circumstances ( McDonald at [25]).

iii)The steps taken by the Applicant must be objectively reasonable in the sense that they would be those taken by a ‘reasonable person endowed with the knowledge and experience of the [applicant ]’ ( McDonald at [26-[27]).

11. To these should probably be added a fourth, though it is obvious enough from the provision:

(iv) The person under notice has the task of satisfying the Commissioner that he or she took all reasonable steps to avoid the insolvency.” (emphasis added)

51 It was the Applicant’s contention that the point at which the relevant inquiry as to whether the Applicant took reasonable steps to avoid the bankruptcy or insolvency was in November/2007 when the Commissioner issued a tax assessment against the Applicant and, having made enquiries of his major trade debtor, he was then advised by that creditor that his commission on a major transaction was not going to be paid.

52 The Applicant submitted that it was only when this became clear and in circumstances where the Applicant had no assets to realise and was without earning or borrowing capacity to pay the assessment, that he sought professional advice in early 2008 and acted on that advice in February 2008 by appointing a Controlling Trustee. The Applicant submitted that the Controlling Trustee was an insolvency expert, and he had been appointed to manage his affairs with a view to formulating a proposal whereby he could reach agreement with his creditors on his debts.

53 The Applicant further drew the Tribunal’s attention to the fact that the Respondent had not contended that the Applicant had any unpaid creditors or that he owed any financial institution any money. The Applicant further stated that his actions in seeking and acting upon expert advice to reach a compromise with his creditors in the six months before he was advised by his Trustee to voluntarily place himself into bankruptcy, constitutes a clear fulfilment of the steps that could reasonably have been taken by him from the time the financial difficulties that gave rise to his bankruptcy arose.

54 It was the Applicant’s contention that there was no debt due to the Australian Taxation Office (“ATO”) until such time as the ATO followed the procedures set down in s.4.15 of the Income Tax Assessment Act 1997, calculated the Applicant’s assessable income, deductions and determined his taxable income.

55 He further stated that as this did not occur until late 2007, it was only at that point that the debt came into being and ‘there was no debtor relationship with the ATO, this being a pre-requisite to the ability to pay a debt’.

56 In summary, the Applicant’s argument was that he owed no debt to the ATO until the debt had been crystallised by way of an assessment in November/December 2007 and as he was able to pay all his other debts as they fell due, he had no reason to believe that he was unable to pay his debts as they fell due, nor that he was confronting financial difficulties.

57 The Applicant submitted that he was further supported in this view by the fact that he had no reason to believe he could not pay any tax assessment out of commissions due to him and it was only when he pressed for his commission to enable him to pay his tax assessment that he could be considered to be facing the possibility of insolvency.

58 The Applicant submitted he acted responsibly at all times and that once he became aware of the possibility that he would be unable to pay his ATO debt, he made enquiries, retained (and paid) a professional administrator to:

a)review his affairs;
b)prepare a report for his creditors; and
c)formulate a proposal in the best interests of his creditors.

59 The Applicant contended that having appointed an expert in solvency, he thereafter acted in accordance with his direction.

60 The Applicant distinguished the present circumstances from those in which an applicant has failed to remit PAYG or superannuation for employees as these were crystallised as “sum certain” (debt) pursuant to a deductions table or as required under Superannuation Guarantee Charge Act. In the present circumstances, “no assessment process precedes determination of the debt”.

61 The Applicant sought to make two points with respect to the ATO’s concerns re the applicant’s failure to file a tax return for 2007, stating that his records and affairs were under the control of his Trustee from February 2008 and there was no reason to believe his 2007 return would not be filed in conformity with his accountant’s lodgement program with the ATO.

62 It is the Applicant’s contention that the issue is whether, since November 2007, he, and from February 2008 his Trustee, took reasonable steps to file outstanding income tax returns within the Applicant’s Accountants’ Lodgement Program. The Applicant noted that no Debtor’s Petition was ever filed in respect of the Applicant.

63 The Applicant submitted that the fact that he had sought financial advice once he had become aware that the funds from which he intended to pay the debt would not be forthcoming and this should be viewed favourably in light of the observations in Brandt v Office of Fair Trading [2005] NSWADT, which refers to consideration being given to financial advice sought.

64 The Applicant further noted that he had made offers of settlement that were refused in circumstances where that refusal, in the view of the Applicant’s Controlling Trustee, was against the interests of the refusing creditor.

65 The Applicant further distinguished his application from that of a corporation and the reliance placed by the Respondent on the case of Cross v The Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69 (31 March 2005) as being misplaced, as his client had not taken advantage of the corporations regime nor did he have the statutory obligations a corporation has to keep records and file with ASIC.

66 The Applicant further drew the Tribunal’s attention to the fact that Part 57B, Division 3 of the Corporations Law at s.588G requires that a company must: “incur a debt”.

67 The Applicant further contended that the concept “faced with the possibility of bankruptcy” should be given some limitation in its operation, stating: “any trading enterprises proceeds on the basis trade debtors will pay accounts thereby facilitating the payment of trade creditors”. All trading enterprises face the “possibility” of “bankruptcy/financial difficulties” should trade debtors not pay debts. Accordingly, the Applicant argued his position was unexceptional up until late 2007.

68 The issue before the Tribunal is whether or not the Applicant took reasonable steps to avoid bankruptcy, having regard to the steps that could have been taken by him from the time that the financial difficulties that gave rise to the outcome first arose.

69 Section 63 of the Administrative Decisions Act 1997 states that:

“In determining an application for review the Tribunal is to make the correct and preferable decision having regard to the material before it, and any applicable or unwritten law. It is well established that in considering an application for review, the Tribunal is not constrained to have regard only to that material that was before the Commissioner, but may have regard to any relevant material before it at the time of the review.” ( Drake v Minister for Immigration and Ethnic Affairs [1979] AATA 179; (1979) 46 FLR 409)

70 There was no dispute that the Applicant is a ‘disqualified person’ pursuant to s.16(1A) of the Act, being an undischarged bankrupt.

71 The Applicant held a Real Estate Certificate from 19 September 1981 to 15 September 1990 and a Real Estate Licence from 19 September 1990 to 3 March 2009.

72 On 1 March 2007 the Property, Stock and Business Agents Amendment Act 2006 was proclaimed and commenced operation. Among other things it amended s.16 of the Property, Stock and Business Agents Act 2002 by repealing subsection (1)(e) and introducing new provisions as to ‘disqualified persons’. The new provisions introduced included s.16(1A), (2A), (2B), (2C) and (2D). These amendments were consistent with a number of earlier decisions of the Tribunal (Davidson v Commissioner for Fair Trading [2004] NSWADT 200; McDonald v Commissioner for Fair Trading [2004] NSWADT 124 and Cross v Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69, dealing with the questions of whether reasonable steps have been taken to avoid bankruptcy or insolvency.

73 Section 16(2B) and (2D) of the Act provides, in part:

“(2B) The Director-General may exempt a person from the operation of subsection (1A)(a), (b) or (c) by:

(a) certifying, in the case of exemption from subsection (1A)(a) that the Director-General is satisfied that the person took all reasonable steps to avoid the bankruptcy concerned, or

...

(2D) In determining for the purposes of subsection (2B) or (2C) what reasonable steps could have been taken by a person to avoid a particular outcome, the Director-General is to have regard to the steps that could have been taken by the person from the time that the financial difficulties that gave rise to the outcome first arose.”

74 He applied to have his real estate licence renewed on 6 March 2009. The application was refused by New South Wales Fair Trading on the grounds he was an undischarged bankrupt and failed to take reasonable steps to avoid the bankruptcy, having regard to the time at which the financial difficulties first arose.

75 The Applicant failed to lodge tax returns from 2000 to 2006 while acting as a Real Estate Consultant. The exact date the returns were lodged is not clear, but it appears to have been in late 2007 (November/December). Once the returns were lodged he was issued with an assessment showing he owed in excess of $500,000 to the Australian Tax Office.

76 On 13 February 2008 a Controlling Trustee was appointed, Christopher Palmer. Mr. Palmer drafted a Personal Insolvency Agreement (“PIA”).

77 On 7 March 2008 the PIA was proposed by Mr. Palmer for the Applicant.

78 On 19 March 2008 a meeting took place between the Applicant and his creditors at which the PIA was refused. The offer in the PIA at that time was 7.84 cents in the dollar.

79 A continuation of the Meeting of Creditors took place on 9 April 2008 at which a further offer set out in an Amended PIA (12.79 cents in the dollar) was also refused by the Deputy Commissioner of Taxation (“DCT”) on the grounds that the liabilities to the DCT may increase because there were a number of outstanding returns, the 2007 income tax return had not been completed and lodged, and the debtor advised that his accountant was in the process of preparing the outstanding BAS returns and his 2007 income tax return.

80 On 4 August 2008, as a result of his own Petition, the Applicant was declared bankrupt.

81 The Applicant applied to have his Real Estate Licence renewed on 6 March 2009.

82 In the Second Reading Speech in the New South Wales Legislative Assembly on the Property, Stock and Business Agents Amendment Bill (“the Amendment Bill”) the then Minister for Fair Trading, Ms Diane Beamer, said, in regard to the introduction of s.16(2D) at the 8th and 9th paragraphs:

“The intended purpose of the disqualification provision is to ensure people who have demonstrated an inability to adequately manage their business ... should be excluded from holding a licence ... the amendments proposed in the bill make it clear that the Commissioner should consider the steps taken by the Applicant to avoid bankruptcy when financial difficulties first arose in the business ...

... A person should not be granted the discretion based solely on their actions after they have been served with the bankruptcy notice, because this would ignore the financially irresponsible behaviour which led to the serving of the notice.”

83 The foregoing extract from the Second Reading Speech introducing the Amendment Bill demonstrates that parliament does not want to encourage licence holders to behave in a financially irresponsible manner, yet avoid losing their Real Estate Licence simply by not lodging their tax return and thereby meeting their statutory obligations so as to avoid crystallisation of the debt.

84 President O’Connor DCJ discussed the issue of what constituted reasonable steps to avoid the bankruptcy or insolvency in Clark v Commissioner for Fair Trading [2004] 273, when his Honour reviewed the approach taken in earlier cases. The President said, at [11]:

11. To these should probably be added a fourth, though it is obvious enough from the provision:

(iv) The person under notice has the task of satisfying the Commissioner that he or she took all reasonable steps to avoid the insolvency.”

85 It is important to note that at all times it is the person under notice (that is, the Applicant) who has the task of satisfying the Commissioner that he or she took all reasonable steps to avoid the bankruptcy/insolvency. In determining whether the Director General may exempt a person from the operation of s. 16(1A), it is incumbent upon the Applicant to demonstrate to the Director’s satisfaction what steps have been taken to avoid bankruptcy and in what way they could be said to be all reasonable steps necessary to avoid a bankruptcy.

86 In Saglimbeni v Commissioner for Fair Trading, NSW Office of Fair Trading [2008] NSWADT 1, Montgomery JM considered the reasonable steps required to be taken to avoid bankruptcy or insolvency and concluded that in order to determine whether all reasonable steps to avoid the Body Corporate becoming an externally administered body had been taken from the time that the financial difficulties that gave rise to the outcome first arose, he had to determine three issues. First, when the Applicant knew or ought to have known, that the external administration in question was a possibility? Secondly, to determine what steps they took to avoid the external administration and thirdly, what steps a reasonable person endowed with their knowledge and experience ought to have taken to avoid that outcome?

87 I propose to adopt Montgomery JM’s approach, as set out below:

(i) When did Mr. Vrisakis know or ought to have known that the bankruptcy was a possibility?

88 It is the Applicant’s contention that it was only after the debt had been crystallised that he could be said to have been aware of the financial difficulties that gave rise to the bankruptcy.

89 The Applicant has held a Real Estate Licence for almost twenty years and was previously bankrupt from 19 June 1998 to 10 November 1999, when he was discharged by s.74 annulment – debt settled.

90 From the following year, 2000, until 2007 he did not file income tax returns. I believe it would be contrary to public policy and the spirit of the Act to permit an applicant to use his failure to lodge tax returns over a period of some six years, and the consequent absence of a taxation assessment as the foundation for asserting that he was unaware financial difficulties/bankruptcy were possibilities.

91 This is exactly the sort of financially irresponsible behaviour the Minister for Fair Trading was referring to in her Second Reading Speech introducing the Property, Stock and Business Agents Amendment Bill in November 2005.

92 The Applicant had considerable experience in the real estate industry and should have had a heightened awareness of the risks of bankruptcy, having recently had his previous bankruptcy discharged in 1999. There is no evidence he took any steps to cater for his income tax liabilities which were accruing between 2000 and 2006, but instead operated in the hope that he would earn considerable commission from sales of real estate to cover those liabilities (which he was, in effect, improperly deferring by not lodging tax returns).

93 Accordingly, I am of the view that the Applicant would or should have been aware for some time well before late 2007 that he was in financial difficulties that may well give rise to bankruptcy.

(ii) What steps did the Applicant take to avoid the bankruptcy?

94 The Applicant has done little to satisfy the Commissioner or indeed the Tribunal as to what steps he took to quantify his potential tax liability based on income he was earning and what commission in particular, he was expecting to receive to cover such liabilities or offset those liabilities by deductions. The Applicant provided no material to satisfy the Tribunal that he had taken any or reasonable steps during the period between 2000 and late 2007.

95 The remarks in Brandt v Office of Fair Trading [2005] NSWADT (17 February 2005), are apposite:

“15. In these decisions it was considered that it was relevant to assess what steps the applicant had taken to avoid bankruptcy after he knew or ought to have known that bankruptcy was a possibility. The test of “reasonable steps” is that of what a reasonable person endowed with the knowledge and experience of the applicant would do. The application of the test therefore requires the Tribunal to consider two issues –

(i) when did Mr Brandt know, or ought to have known , that bankruptcy was a possibility ?

(ii) what steps did he take to avoid the bankruptcy?
...

24. In my view it is highly significant that Mr Brandt has been bankrupt on two earlier occasions. In those circumstances it is reasonable to assume that he would have had a heightened awareness of issues relating to bankruptcy.”

96 In the proposed Part 10 Personal Insolvency Agreement of the Applicant, NSW No 1145 of 2008/4 dated 7 March 2008, at page 4, paragraph [5.2] – Circumstances leading to the debtor’s controllership, it states:

“The debtor has advised that from 2000 to 2006, he was providing real estate consultant services to a number of clients, including a client who owned a number of aged care facilities in New South Wales, Victoria and Western Australia. The debtor has further advised in June 2006 his consultancy arrangement with his client was terminated at which time the client was negotiating the sale of one of its aged care facilities which one settlement would have provided the debtor with a substantial commission. The sale did not proceed and no commission was paid to the debtor. The debtor is of the opinion that had he received the commission then, he would be able to settle his debt with the DCT.”

97 This suggests that the Applicant was aware, from as early as mid 2006 the major but unspecified commission he was anticipating and supposedly relying on to meet his tax liability, would no longer be available. Nevertheless, it was not until November/December 2007 that the Applicant filed tax returns which gave rise to the ATO assessment which in February 2008 was quantified at $605,591, including income tax, general interest charges and GST.

98 The Applicant did not provide the Tribunal with any material with respect to his income during this period or indeed the amount of any outstanding commission and when it was due to be paid, such as to demonstrate that he had grounds for believing he would have no tax liability for this period and consequent risk of bankruptcy.

99 The Applicant had an ongoing awareness from 2000 through until 2007 that he was accruing an income tax liability arising from the income earned during that period. While I accept that it was impossible to quantify precisely the amount, nevertheless he would have had an awareness of this accruing liability and in accordance with the views expressed in the case of Cross v Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69 (31 March 2005), I believe that a reasonable person endowed with the Applicant’s knowledge and experience would have realised that he was in financial difficulties that may well lead to bankruptcy.

100 In the case of Cross v Commissioner for Fair Trading, Off ice of Fair Trading the Tribunal considered the case of a real estate agent who was the director of a company that had gone into liquidation, where it was said:

“15. The Commissioner contends that Mr. Cross should have been aware that liquidation could have been a possibility in 1999 because by failing to pay the company’s statutory obligations he was just delaying the day when the company would have to pay and when this occurred the company might not be in a position to pay the arrears and penalties .
...

17. I agree with the Commissioner on this issue. It seems to me that a reasonable person endowed with Mr. Cross’ knowledge and experience would have realised that liquidation was more than a possibility when the company could not meet its statutory obligations.”

(iii) Were the steps taken by the Applicant reasonable, in the circumstances?

101 The test of “reasonable steps” is that of what a reasonable person endowed with the Applicant’s knowledge and experience would do, from the time that the financial difficulties that gave rise to the outcome first arose (Saglimbeni v Commissioner for Fair Trading, NSW Office of Fair Trading [2008] NSWADT 1.

102 The Applicant’s contentions as to reasonable steps fail to address the fact that throughout the period from 2000 to 2007 it was in the hands of Mr. Vrisakis as to when he filed tax returns and crystallised his annual debt to the ATO. I am of the opinion that as a businessman, and a Real Estate Agent of some 20 years and a recently discharged bankrupt, it is reasonable to assume that the Applicant knew (or should have known) that a significant component of his business debt was his statutory obligation to pay tax.

103 Furthermore whilst the Applicant contends that the accidental destruction of his financial documents in 1999 prevented him from lodging the tax returns for 2000/2001, this does not explain his failure to lodge returns from 2002 to 2006 inclusive. In any event, he was able to lodge all the past returns in 2007 and the exact amount he owed was then assessed by the Tax Office. He did not explain why this did not occur much earlier (i.e. closer to 2002 than 2007).

104 Whilst the Applicant also asserts that he believed that the unspecified commission to which he was entitled pursuant to the sale of an aged care facility would have been sufficient to offset his tax debt; his agency was terminated in 2006, the sale did not proceed. This was some six years after he had failed to lodge his 2000 tax return.

105 In the case of Hinde v Commissioner of Fair Trading [2008] NSWADT 219 (31 March 2005), where the applicant was a real estate agent and solicitor, it was said that:

“[The Applicant] has provided no evidence as to the steps he took when he first realised he was in financial difficulties and he did not have enough funds to meet the demands of his creditors. He is a man with considerable business experience in the corporate world ... he took no steps to cut his costs but operated in the hope that he would earn considerable commission from sales of real estate.”

106 There is little or no evidence of steps the Applicant took between 2000 and November 2007 to make proper provision for his accruing liabilities and hence minimize financial difficulties that would otherwise make bankruptcy a possibility (again). Accordingly the Tribunal is not satisfied that he took all reasonable steps to avoid bankruptcy.

107 The issue of statutory obligations was also considered in Cross v Commissioner for Fair Trading, Office of Fair Trading [2005] NSWADT 69 (31 March 2005) where the Tribunal considered the case of a real estate agent who was the director of a company that had gone into liquidation:

“15. The Commissioner contends that Mr Cross should have been aware that liquidation could have been a possibility in 1999 because by failing to pay the company’s statutory obligations he was just delaying the day when the company would have to pay and when this occurred the company might not be in a position to pay the arrears and penalties.

...

17. I agree with the Commissioner on this issue. It seems to me that a reasonable person endowed with Mr Cross’ knowledge and experience would have realised that liquidation was more than a possibility when the company could not meet its statutory obligations.”

108 The Tribunal also considered the” reasonable steps” in Jones and Anor v Commissioner for Fair Trading, NSW Office of Fair Trading [2008] NSWADT 140 (16 May 2008) considering the reasons for the legislation [quoting the decision in McDonald v Commissioner for Fair Trading [2004] NSWADT 124]

“... One purpose of the Act is to protect sellers and buyers ... from dishonest or disreputable real estate agents. If a person becomes bankrupt as a result of ... financial irresponsibility, it may be necessary to protect the public ... Taking all steps to avoid bankruptcy is consistent with being financially responsible.”

109 The Applicant contends that he was able to manage his business until late 2006, as he was able to pay all his debts as they fell due and there was no debt due to the Australian Tax Office until such time as the ATO followed the procedure set down in s.4.15 of the Income Tax Assessment Act 1997 and calculate the Applicant’s assessable income, deducted any deductions and determined his taxable income. In reality, the assertion is that he was able to manage his debt and stay afloat by avoiding/ignoring his growing obligation to his major creditor the ATO.

110 In light of the above, I am of the opinion that a reasonable person endowed with the knowledge and experience of Mr. Vrisakis would have been aware some time early in 2000 that he was in financial difficulties that may well give rise to the possibility of a bankruptcy and certainly in June 2006, upon discovering that the commission that he was relying upon to pay his tax debt was not going to be forthcoming, that he clearly was in financial difficulties that would lead to bankruptcy (or more strictly, has failed to adduce evidence to prove the contrary).

111 I am of the view that while the steps taken in February 2008 were directed towards addressing the financial difficulties that would give rise to his bankruptcy, that this was far too late and certainly some time after the Applicant would have been first aware of those financial difficulties.

112 Accordingly, I agree with the Commissioner’s determination that Mr. Vrisakis is a disqualified person for the purposes of the Act, and the Commissioner made the correct and preferable decision in not exempting Mr Vrisakis form the operation of s.16(1A) in so determining not to renew the Applicant’s Real Estate Licence.

Orders:

The decision under review is affirmed.