Wharton and Official Receiver in Bankruptcy
[2000] AATA 460
•8 June 2000
DECISION AND REASONS FOR DECISION [2000] AATA 460
ADMINISTRATIVE APPEALS TRIBUNAL )
) No V1999/810
GENERAL ADMINISTRATIVE DIVISION )
Re STEPHEN LYNNE WHARTON
Applicant
And OFFICIAL RECEIVER IN BANKRUPTCY
Respondent
DECISION
Tribunal Deputy President A M Blow OAM, QC., Brigadier C Ermert (Part-time Member) Mr W G McLean (Part-time Member)
Date8 June 2000
PlaceMelbourne
Decision The decision under review is affirmed.
[Sgd A M Blow]
Deputy President
CATCHWORDS
Bankruptcy – objection to discharge – failure to comply with request in writing for written information – requests to bankrupt's solicitor.
Bankruptcy Act 1966 – s.149D(1)(d)
Saffron Walden Second Benefit Building Society v Rayner (1880) 14 ChD 406;
Arden v Arden (1885) 29 ChD 702 at 709;
Singer v the Trustee of the Property of Munro [1981] 3 All ER 215.
REASONS FOR DECISION
8 June 2000 Deputy President A M Blow OAM, QC., Brigadier C Ermert (Part-time Member) Mr W G McLean (Part-time Member)
The applicant is a bankrupt. On 26 May 1999 a delegate of the respondent objected to the discharge of the applicant from bankruptcy by filing a notice under s.149B of the Bankruptcy Act 1966 ("the Act"). The effect of that is to delay his discharge from bankruptcy by five years, until 29 May 2004. The applicant has applied to this Tribunal pursuant to s.149Q(a) of the Act for the review of the decision to file that notice.
Under s.149C, a notice of objection under s.149B is required to set out each of the grounds of objection, to refer to the evidence or other material believed to have established each such ground, and to state the reasons for objecting to the discharge on those grounds. It is common ground that the scheme of the Act is such that, in these review proceedings, the respondent is not entitled to rely upon any ground not referred to in the notice.
In essence, the only grounds relied upon in the notice in this case were that the applicant had failed to provide information in such circumstances that s.149D(1)(d) of the Act was applicable. That provision reads as follows:
"(1) The grounds of objection that may be set out in a notice of objection are as follows:
…(d)the bankrupt, when requested in writing by the trustee to provide written information about the bankrupt's property, income or expected income, failed to comply with the request".
Because of a definition of the term "the trustee" in s.5(1) of the Act, the reference to the trustee means the trustee of the estate of the bankrupt. In this case that trustee was the Official Trustee in Bankruptcy. At all material times the Official Trustee acted through delegates and agents who were officers of the Insolvency and Trustee Service Australia ("ITSA").
Under s.139W of the Act, the trustee of a bankrupt is required to make periodic assessments of the bankrupt's income, and of the contribution (if any) that the bankrupt is liable to pay in respect of each contribution assessment period under s.139S of the Act. For the purposes of such assessments, the word "income" is defined in s.139L of the Act so as to include various sorts of notional income. Under s.139U of the Act, a bankrupt is required in relation to each contribution assessment period to give the trustee a statement setting out particulars of the income derived by him or her during that period, and indicating what income (if any) he or she expects to derive during the next contribution assessment period. Under s.139V the trustee has the power to give the bankrupt a written notice requiring the giving of further information if the trustee has reasonable grounds to suspect that any particulars in the s.139U statement are false or misleading in a material respect, or that any material particulars have been omitted from that statement. Under s.77(ba) of the Act, a bankrupt has a duty to give his or her trustee "such information about any of the bankrupt's conduct and examinable affairs as the trustee requires". Under s.77(g) a bankrupt has a duty to "aid to the utmost of his or her power in the administration of his or her estate".
In this case, a sequestration order was made on 16 November 1994 as a result of the applicant's failure to comply with a bankruptcy notice. Pursuant to s.115 of the Act, the date of the commencement of the applicant's bankruptcy was 23 March 1994, that being the date that the bankruptcy notice expired. Because of various court proceedings contesting the bankruptcy, the applicant did not file a statement of affairs until 29 May 1996. In the absence of any objection to his discharge from bankruptcy, he would have been discharged three years thereafter by operation of s.149(4) of the Act. Under s.149B(1) of the Act, either the trustee or the Official Receiver may file a notice of objection to a bankrupt's discharge. When such an objection is made on the basis of s.149D(1)(d), as in this case, the effect of the notice of objection is that the date of the discharge from bankruptcy is extended until eight years after the filing of the statement of affairs, pursuant to s.149A(2)(a)(i) of the Act.
The object of the Act is not to punish bankrupts, except where they are guilty of offences. The object of the provisions we have referred to is to protect the public interest and the interests of the bankrupt's creditors. The provisions whereby the trustee or the Official Receiver can object to a bankrupt's automatic discharge from bankruptcy are aimed at securing the cooperation of the bankrupt for the benefit of the public and the bankrupt's creditors.
The respondent's case, as outlined in a statement of facts and contentions, was that there were seven requests for information in respect of which s.149D(1)(d) is applicable. They were listed in that document (p.5, para 6) as follows:
"(a)Oral requests made by ITSA's officers at an interview with the bankrupt on 9 December 1997;
(b)ITSA's letter dated 11 December 1997 (T15/87.1);
(c)ITSA's letter dated 6 February 1998 to the bankrupt's solicitors (T15/87.3);
(d)ITSA's letter to the bankrupt's solicitors dated 5 November 1998 (T15/87.5);
(e)ITSA's letter to the bankrupt's solicitors dated 3 December 1998 (T15/87.17);
(f)ITSA's letter to the bankrupt's solicitors dated 14 December 1998 (T15/87.19); and
(g)ITSA's letter to the bankrupt dated 15 December 1998 (T15/87.33)."
At the hearing, counsel for the respondent sought also to rely on an income questionnaire handed to the applicant on 6 November 1998 and a letter from ITSA to the applicant's solicitor dated 20 November 1998. Mr. Hyde has submitted on behalf of the applicant that the proceeding before the Tribunal must be confined to the matters raised in the respondent's statement of facts and contentions. We disagree. This is not a civil court in which the issues to be determined are confined to those arising on the pleadings in an action. Our role is to review a decision – in this case the decision to file the notice of objection. It is our duty to arrive at the correct or preferable decision on the material before us: Drake v Minister for Immigration and Ethnic Affairs (1979) 24 ALR 577 at 589. A statement of facts and contentions is a vehicle by which one party gives the Tribunal and the opposing party notice of its principal allegations and arguments, but each party remains at liberty to raise allegations and arguments not mentioned in its statement of facts and contentions and the Tribunal retains a duty to consider any significant matters that have been overlooked by the parties or omitted from a statement of facts and contentions. Whenever issues not mentioned in a statement of facts and contentions are raised at a late stage, the Tribunal needs to be alert to its duty to afford the parties procedural fairness, but it will rarely if ever be the case that procedural fairness will require that a relevant issue not be considered by the Tribunal. The issues arising in relation to the income questionnaire of 6 November 1998 and the letter of 20 November 1998 were adequately canvassed at the hearing. Thus we have nine requests for information that we must consider. No other requests by or on behalf of the trustee (as distinct from the Inspector-General in Bankruptcy) were mentioned in the notice of objection. We will deal with the nine requests in chronological order.
Oral Requests on 9 December 1997.Oral requests fall outside the scope of s.149D(1)(d) since it uses the words "when requested in writing".
ITSA's Letter Dated 11 December 1997.This letter was written to the applicant. The relevant parts of it read as follows:
"I refer to your interview on 9 December 1997 and request that you provide copies of the following by close of business on 23 December 1997:
1. Bank statements for Mrs. Wharton's bank account for the period 1 January 1997 to date. I note that this account is where your salary is banked.
2. Details of all legal expenses paid on your behalf by ABC Fund Managers Pty Ltd, P.L. Wharton Pty Ltd, Wharton Partners Pty Ltd or any other entity in respect of action taken to contest your bankruptcy from 23 March 1994, being the deemed date of commencement of your bankruptcy.
3. Details of all legal expenses paid on your behalf by ABC Fund Managers Pty Ltd, P.L. Wharton Pty Ltd, Wharton Partners Pty Ltd or any other entity in respect of the criminal proceedings taken by the Australian Federal Police and Victoria Police after 23 March 1994. This would include interviews with Police in respect of alleged offences where you had legal representation and advice obtained in respect of same."
The applicant gave evidence that he asked his wife for her bank statements, and that she refused to make them available. She gave evidence by telephone corroborating what he said. She was under no obligation to be helpful and apparently saw the request for the bank statements as an invasion of her privacy. We are satisfied that the bank statements constituted a written record of information about the applicant's income. We are satisfied that his failure to comply to with the written request to provide them was a failure to which s.149D(1)(d) applied. However we believe that the appropriate course is to disregard that failure since the applicant had been asked to provide written information that was simply not available to him.
We have already referred briefly to the applicant's sequestration order and the bankruptcy notice on which it was based. Paragraphs 2 and 3 of the letter of 11 December 1997 referred to the legal proceedings whereby the applicant contested his bankruptcy. The bankruptcy notice was founded on a final order of the Magistrates' Court of Victoria made on 10 December 1993. The applicant appealed to the Full Court of the Federal Court of Australia against the making of the sequestration order. On 19 December 1994, Gray J made an order staying the operation of the sequestration order pending the determination of the appeal. On 3 November 1995 the Full Court dismissed the appeal. The applicant applied to the High Court of Australia for special leave to appeal. That application was dismissed on 5 February 1996. At the hearing before us, reference was also made to an application for the setting aside of the order of the Magistrates' Court.
One set of criminal proceedings referred to in paragraph 3 of the letter of 11 December 1997 arose out of an investigation by the Fraud Squad of the Victoria Police which, according to the applicant, commenced in 1991. He said that charges were laid in March 1997, that a committal hearing proceeded in January and February 1998, and that all charges were withdrawn. The Australian Federal Police also instituted proceedings in respect of an incident on 17 March 1997 when the applicant was intercepted at Brisbane International Airport trying to take more cash to the Solomon Islands than was permitted under the Financial Transactions Reporting Act 1988. He was successfully prosecuted and required to enter into a good behaviour bond. (That may not be the correct term.)
The applicant wrote back to the Official Trustee on 4 March 1998, supplying the following information in relation to the requests for details of legal expenses;
"2.All legal expenses incurred in contesting my bankruptcy from 23rd March, 1994, have been loaned to me variously by my employer, the A.B.C. Funds Management and Investment Group and family.
For the period 23rd March, 1994 to 15th November, 1994 the amount paid was $6,043. This has been included as part of the monies advanced and shown in the Statement of Affairs under item 9 – Unsecured Creditors.
For the period 16th November, 1994 to 11th December, 1997 the amount paid was $31,350. These amounts loaned to me are repayable by me in the future.3.All legal expenses incurred in respect of the criminal proceedings taken by the Australian Federal Police and Victoria Police after 23rd March, 1994 have been loaned to me variously by the A.B.C. Funds Management and Investment Group and Family. The amounts so advanced, $15,750 to 11th December, 1997 are repayable by me in the future."
In our view the author of the letter of 11 December 1997, Mr. Byrden, in requesting details of legal expenses, ought to have specified with particularity what details he wanted. A sloppy question is likely to elicit a vague or useless response. However we think it is implicit in the request for details of all legal expenses paid by various entities that Mr. Byrden was requesting the applicant to tell him at least how much each entity had paid, if not the amount and date of each payment. The provision of total figures covering all payers, without any further detail, was an inadequate response.
It may be that the figures of $6,043 and $31,350 were incorrect. They are inconsistent with more detailed figures subsequently provided by the applicant. The assertions that money was loaned to the applicant for legal expenses by his family are, strictly speaking, inconsistent with his evidence. However the applicant may have been referring to loans by companies controlled by members of his family. We are not in a position to say that the applicant deliberately provided false information in his letter of 4 March 1998. In our view s.149D(1)(d) is concerned with failing to comply with a request for information, as distinct from inadvertently failing to provide accurate information
ITSA's Letter Dated 6 February 1998.On 6 February 1998 Mr. Byrden wrote to the applicant's solicitor. There is some doubt as to whether that letter was ever received by the solicitor, but we need not make a finding as to that. The letter went no further than to ask the solicitor to advise the applicant to provide within 14 days the information requested in the letter of 11 December 1997. This letter therefore does not advance the respondent's case to any extent.
ITSA's Letter Dated 5 November 1998.It appears that nothing further was done about eliciting information from the applicant until his solicitors approached ITSA by letter dated 8 October 1998 about a possible composition with his creditors. As a result of that approach, a meeting of creditors was planned. A preliminary interview of the applicant was arranged for 6 November 1998. The previous day Mr. Byrden, who was responsible for the discharge of the Official Trustee's duties in relation to the applicant, wrote to the applicant's solicitors in the following terms:
"The trustee needs to question Mr. Wharton about his examinable affairs including but not limited to the following.
1. …
2.Income contributions/expenses paid on behalf of Mr. Wharton. I refer to Mr. Wharton's facsimile dated 4 March 1998 (copy enclosed) and advise that the trustee requires greater particularity of these expenses including the name of the person or entity that provided the funds, on what date(s) where[sic] the funds provided, evidence of payment, copies of invoices and copies of any loan agreements.
3.Details relating to the bankrupt's occupation of 7 Barry Street, Kew including who owns the property and how much rental is paid for the premises.
I appreciate that your client will have limited time to provide any of the documentation sought however the trustee wishes to question him in relation to the above matters."
Apart from the request for specific documents in paragraph 2 of the letter, Mr. Byrden was not making any requests for "written information", that being what s.149D(1)(d) is concerned with, but was only giving notice of what he wanted to discuss at the interview. The request for "evidence of payment" was not a request for information, but a request for evidence that any information provided by the applicant was correct. The applicant gave evidence, which we accept, that there were no written loan agreements. Thus, with the possible exception of the request for "copies of invoices" it cannot be said that this letter was a request to which s.149D(1)(d) could apply.
It is of critical significance that this letter was written not to the applicant, but to his solicitor. There are a number of reported cases in which it has been held that a notice sent to a solicitor who has not expressly been authorised to receive it does not constitute a notice given to that solicitor's client: Saffron Walden Second Benefit Building Society v Rayner (1880) 14 ChD 406; Arden v Arden (1885) 29 ChD 702 at 709; Singer v the Trustee of the Property of Munro [1981] 3 All ER 21. In the last of these cases, Walton J said this at 218:
"It is, of course, a common fallacy to think that solicitors have an implied authority on behalf of their clients to receive notices. They may have express authority so to receive them, but in general a solicitor does not have authority to accept a notice on behalf of his client."
The critical words in s.149D(1)(d) are "the bankrupt when requested in writing by the trustee". The term "the bankrupt", given its ordinary literal meaning, does not include the bankrupt's solicitor. In the light of the authorities we have referred to, we do not think that term should be taken as including the bankrupt's solicitor, unless the solicitor has been expressly authorised by the bankrupt to receive requests in writing from the trustee to provide information. There was no suggestion of any such authorisation in this case.
We therefore conclude that the letter of 5 November 1998 does not constitute a request to which s.149D(1)(d) can apply.
Income Questionnaire of 6 November 1998On 6 November 1998 there was a meeting between Mr. Byrden, the applicant and his solicitor. During that meeting Mr. Byrden handed the applicant an income questionnaire. The front page of the questionnaire included the following instructions:
"You are requested to provide details of your income on this Income Questionnaire. Information in this questionnaire will be used to determine the sum you are required to contribute to your bankrupt estate (if any).
…
Please make sure that you answer all questions.
This questionnaire must be completed and returned before: 23 November 1998".The applicant completed the questionnaire in his own handwriting and faxed it to Mr. Byrden on the morning of 14 December 1998.
Instructions at the end of the questionnaire required the applicant to ensure that certain documents were sent back with the completed questionnaire. Those documents included a copy of his last tax return and a copy of his last tax assessment. He did not send either of those documents. He gave evidence, which we accept, that as at December 1998 his last tax return and tax assessment related to the year ended 30 June 1993. Although his failure to send in copies of those documents constituted a failure to comply with a request for information to which s.149D(1)(d) applies, we do not think that failure should be taken into account against the applicant because information as to his financial position in the year ended 30 June 1993 would have been stale and therefore useless.
Question 14 of the questionnaire read as follows:
"14. Do you receive, or expect to receive, any other benefit or entitlement from any other person or entity?
EXAMPLES of benefits include:
- car & car running expenses - doctors or chemist bills
- rent or board - children's education expenses
- low interest loansNo ÿ Yes ÿ If Yes, answer the following
Include benefits where you make some contribution towards their cost
Type of benefit Who receives the benefit? Value of benefit $
Total $
".
28.In response to that question the applicant ticked the "No" box, put a diagonal line through the space provided for details of the types of benefits, who received the benefits, and the value of the benefits, and wrote against the diagonal line "NA", no doubt meaning "not applicable". The respondent contends that in response to this question the applicant should have disclosed the arrangements for the payment of his legal expenses, arrangements for his solicitors to provide their services in relation to his bankruptcy on a pro bono basis, and arrangements with his mother for the payment of school fees for two of his children.
29.Before dealing the facts, we should consider whether Question 14 constitutes a request to provide written information "about the bankrupt's … income or expected income" within the meaning of s.149D(1)(d).
By virtue of sub-paragraph (a)(v) of the definition of "income" in s.139L of the Act, certain low-interest loans, interest-free loans, and gratuitously provided benefits all constitute income for the purposes of s.139W.
The relevant parts of the definition read as follows:
"In this Division:
income, in relation to a bankrupt, has its ordinary meaning, subject to the following qualifications:(a)the following are income in relation to a bankrupt (whether or not they come within the ordinary meaning of "income"):
…
(v)the value of a benefit that:
(A)is provided in any circumstances by any person (the provider) to the bankrupt; and
(B)is a benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 as in force at the beginning of 1 July 1992 (other than a benefit that would be an exempt benefit for the purposes of that Act if the provider were the employer of the bankrupt as an employee and the provider had provided the benefit in respect of the employment of the bankrupt);
being that value as worked out in accordance with the provisions of that Act but subject to any modifications of any provisions of that Act made by the regulations under this Act".
The definition of the word "benefit" in s.136(1) of the Fringe Benefits Tax Assessment Act 1986 ("the FBTA Act") as at 1 July 1992 included the following provisions:
"'benefit' includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be provided under:
(a) an arrangement for or in relation to:(i)the performance of work (including work of a professional nature), whether with or without the provision of property;
(ii)the provision of, or of the use of facilities for, entertainment, recreation or instruction; or
(iii)…
(b) …
(c) an arrangement for or in relation to the lending of money".
Although the definition of "income" in s.139L is expressed to apply only to a different division of the Act, we believe the reference to income in s.149D(1)(d) ("written information about the bankrupt's … income or expected income") ought to be interpreted as referring to the extended definition of income in s.139L. Such an interpretation is warranted by s.15AA of the Acts Interpretation Act 1901, since it promotes one of the underlying purposes or objects of the Act, namely the encouragement of cooperation by bankrupts.
The applicant's case was that all of the monies paid by various entities in respect of his legal expenses were paid by way of loans, that there were no written loan agreements, that it was a term of an oral loan agreement in relation to each such loan that he would pay interest, and that the applicable interest rate or rates did not make those loans "low interest loans" within the meaning of the question. The applicable definition of "benefit" in s.136(1) of the FBTA Act is such that a loan is not a benefit if interest at or above a prescribed rate is payable.
At the hearing the applicant provided a series of schedules giving details as to the payment of his legal expenses. It appears that between 6 July 1994 and 24 September 1997 a series of such payments were made by companies named P L Wharton Pty Limited, Wharton Partners Pty Limited, and Tye Nominees Pty Limited. The applicant was a director of each of these companies until 3 November 1995. At all material times during his bankruptcy Wharton Partners Pty Limited was his employer and the directors of the three companies comprised relatives and business associates of his. We have no reason to doubt his evidence that no written loan agreements were entered into at the times the various monies were advanced. We have no reason to disbelieve his evidence that each payment was a payment made by way of loan. In his oral evidence he said each loan agreement was made orally, but later asserted that in some instances the loan agreements were made by him in his personal capacity with himself as the agent of the lender company. We doubt that he spoke to himself, but are prepared to accept that there were occasions when he had the authority of one or more of the companies to expend monies as he saw fit on his legal expenses by way of loans to himself, and did so.
On 15 December 1998, in order to facilitate the casting of proxy votes at the meeting of his creditors that was held later that day, the applicant executed two acknowledgments of debt, one in respect of debts totalling $40,272.78 said to be owing by him to Wharton Partners Pty Limited, and one in relation to debts of $177,247.41 said to be owing by him to P L Wharton Pty Limited. Both documents were in a similar form. The one in relation to Wharton Partners Pty Limited read as follows:
"I, Stephen Lynne Wharton, hereby acknowledge and confirm that the amounts disclosed in the attached Wharton Partners Pty. Ltd. Statements of Loan Account are owed by me to Wharton Partners Pty. Ltd. and represents [sic] monies paid on my behalf.
Interest shall accrue at the minimum rate established for FBT purposes and this debt is repayable by me upon notice being given by Wharton Partners Pty. Ltd., provided that no such notice or demand shall be made during the period of my bankruptcy."Mr. Galvin submitted that the applicant had concocted the two acknowledgments of debt for the purposes of the creditors' meeting. There is nothing improper about a debtor executing an instrument acknowledging a pre-existing loan debt if that instrument does no more than to set out accurately the amount owed and the terms of the loan. We do not have any evidence that would entitle us to make a finding that the applicant fabricated his evidence as to a liability to pay interest at the minimum rate established for fringe benefits tax purposes. His evidence to the effect that all the monies in question were advanced pursuant to agreements or arrangements to that effect is unshaken, uncontradicted, and not inherently improbable. The applicant is an experienced accountant, and a clever man. Advice from his solicitors was available at all times. They appear to be very experienced and competent in relation to bankruptcy law. We accept that all the payments of the applicant's legal expenses were made pursuant to unwritten loan agreements that contained express terms that interest would accrue at the minimum rate established for fringe benefits tax purposes. We infer that he arranged this so in order to avoid fringe benefits tax in circumstances where there was an employer/employee relationship with the lender, or might be in the future, and for the purpose of minimising the contributions that he might be required to make under the Act after the assessment of his notional income. We are therefore reasonably satisfied that, by failing to disclose any low-interest loans in response to Question 14 of the income questionnaire, he was not failing to comply with a request for information within the scope of s.149D(1)(d).
When he filled out the questionnaire, the applicant had an ongoing arrangement with his solicitors that they would provide their services in relation to his bankruptcy on a pro bono basis. They were acting for him in relation to the proposal for a composition with his creditors, with a meeting of creditors due to be held to consider that proposal on 15 December 1998, only five days after the return of the questionnaire. The respondent contends that the gratuitous provision of the solicitors' services constituted a benefit within the meaning of Question 14 of the questionnaire, and that the applicant's failure to disclose that benefit was a failure to comply with a request for information within the scope of s.149D(1)(d). There was also an arrangement in force whereby the applicant's mother was regularly paying the school fees of two of the applicant's three children. The respondent contends that the payment of the school fees also constituted a benefit within the meaning of Question 14, and that the failure to disclose that benefit was within the scope of s.149D(1)(d). We have already referred to sub-paragraph (a)(v) of the definition of "income" in s.139L of the Act, and the definition of "benefit" in the FBTA Act. The effect of those provisions is that, when a trustee assesses an income contribution to be made by a bankrupt, the value of any benefits received by the bankrupt from other people can be taken into account as if the applicant were deriving an income equal to the value of those benefits.
However the same cannot be said in relation to the other benefits. Although the applicant not give evidence that he knew his solicitors were doing their work in connection with his bankruptcy on a pro bono basis, we infer from the evidence of his solicitor that he must have known that that was the arrangement. Mr. Hyde submitted on behalf of the applicant that the arrangement might have involved a deferred payment, or a contingent payment, but we would still see the provision of the solicitors' work on any such basis as a benefit. In our view the provision of the solicitors' pro bono work and the school fees paid by the applicant's mother were clearly benefits within the meaning of sub-paragraph (a)(v) of the definition of "income" in s.139L of the Act. Question 14 of the income questionnaire was wide enough to cover them ("any other benefit … from any other person or entity"). The question specifically referred to "children's education expenses" by way of example. We therefore find that the applicant's failure to disclose that he was receiving these two benefits constituted a failure to provide written information within the scope of 149D(1)(d). We will comment later on the significance of his failure to disclose these benefits.
ITSA's Letter Dated 20 November 1998.On 20 November 1998 Mr. Byrden wrote to the applicant's solicitor in the following terms:
"In order to assess Mr. Wharton's liability for income contributions the trustee needs to arrange for its agent to inspect your client's residence at 7 Barry Street, Kew for the purposes of assessing its market value as a rental property.
Please advise of a suitable date and time for such inspection."
Again, this was a letter to the bankrupt's solicitor, as distinct from the bankrupt. The solicitor was not acting for the applicant in relation to the assessment of income contributions, but only in relation to a proposed composition. The letter did not make a request for written information. Even the request that the solicitor advise of a suitable date and time for an inspection did not invite a written response. For these reasons this letter did not amount to a request within the scope of s.149D(1)(d).
ITSA's Letter Dated 3 December 1998
42.On 3 December 1998 Mr. Byrden wrote the applicant's solicitor a letter following up his letters of 5 November 1998 and 20 November 1998 and requesting that the solicitor provide a written response to the matters raised. It is true that this letter specifically requested written information, whereas the earlier letters, generally speaking, did not call for written responses. But this was a letter to the solicitor, and it did not request that written information be provided by the bankrupt. Mr. Byrden also asked for the income questionnaire to completed and returned, but that request is of no significance since the original questionnaire was handed directly to the bankrupt and contained a written request for its completion and return.
At some stage the applicant prepared three schedules setting out details of the payments made in respect his legal expenses. They are before us as Annexure E to his witness statement (Exhibit A1). In respect of each payment, they show the date, the amount, the payee, and the payer. The applicant and Mr. Davies both say that these schedules were handed to Mr. Byrden during the meeting of creditors on 15 December 1988. Mr. Byrden says he did not receive them until December 1999, when he received a copy of them from the applicant's solicitors via ITSA's solicitors. Questions also arose at the hearing as the accuracy of these three schedules. We accept that Mr. Byrden did not see these documents until December 1999. We infer that they must not have been made available to him at the meeting of 15 December 1998. We think these documents are so important that he would not have overlooked them on that occasion. It is apparent from correspondence that the applicant's solicitor firmly believed that these documents had been available at the December 1998 meeting. We infer that he must have been mistaken about that, and that the applicant must also have been mistaken about that. We expect they confused them with some loan account summaries that were annexed to the two acknowledgments of debt, copies of which were made available by the applicant at the time of the December 1998 meeting. We are reasonably satisfied that, in so far as the three schedules provided by the applicant contained some inaccuracies, any mistakes that he made were inadvertent. Since some amounts were included that should not have been included, and vice versa, it is apparent that he was not attempting to mislead the trustee as to the total amount paid by way of legal expenses.
ITSA's Letter of 14 December 1998On 14 December 1998 Mr. Byrden wrote the applicant's solicitor another follow-up letter, seeking the information requested in his letters of 5 November 1998, 20 November 1998 and 3 December 1998. The only fresh request made was a request to the solicitor to advise in writing whether he intended to provide the information sought and, if so, when it was to be provided. That of course was another request to the solicitor and thus outside the scope of s.149D(1)(d).
ITSA's Letter Dated 15 December 1998.Mr. Byrden wrote directly to the applicant, apparently for the first time in months, on 15 December 1998. There does not appear to have been any systematic approach as his to choice of addressees. By this letter, Mr. Byrden simply forwarded and explained a contributions assessment. He did not request any information. He asserted that information had been requested and not provided, but did not make any requests.
ConclusionIn our view the most significant failure by the applicant to comply with a request in writing on behalf of his trustee to provide written information about his "income or expected income" occurred when he failed to disclose the benefits constituted by his solicitors' unpaid work and the school fees paid by his mother, which should have been disclosed in response to Question 14 of the income questionnaire. One likely effect of such non-disclosure was the under-assessment of the income contributions required to be paid by the applicant. In addition it is significant that the questionnaire was completed and returned shortly before a meeting of creditors that had been called to consider a proposed composition. There was a danger that the trustee's agents or delegates, unaware of the undisclosed benefits, might have under-estimated the income contributions likely to be recovered from the applicant, and that an under-estimate of such contributions might have influenced creditors to vote in favour of the proposed composition. Since the applicant is a clever, experienced accountant, and had the benefit of specialist legal advice, we think he ought to have been alert to these consequences. We leave open the question whether he was in fact alert to them. There is nothing ambiguous about Question 14. The applicant has no excuse for not disclosing the benefits he was receiving from his solicitors and his mother.
The applicant gave evidence that it was his mother's choice to pay for his daughter to attend Lauriston and for his son to attend Melbourne Grammar. He went on to say this:
"There has been quite a few disputes over time about the quality of the education and the price. I'm quite certain at times I would've been quite happy for them to be going somewhere else."
The applicant and his wife have the right as parents to decide which schools their children attend. The applicant is a sophisticated professional person. He chooses to rent an expensive house in Kew that has features of heritage significance. He does not strike us as the sort of individual who would see no benefit in two of his children being educated at Lauriston and Melbourne Grammar, rather than State schools. He did not claim to have any ideological objection or considered indifference to the arrangements for their education. We therefore infer that he would consider their education at their private schools to be of benefit to them. As he and his wife have responsibility for their children's education, and as the children are dependent on him and his wife, we think he ought to have considered the payment of the school fees by his mother as a benefit that he was receiving, and ought to have disclosed that benefit accordingly.
By failing to answer Question 14 of the income questionnaire properly, the applicant failed to provide information that was potentially very significant in circumstances where he had no reasonable excuse for not providing that information. The applicant's inadequate response to the letter of 11 December 1997 is also significant, particularly given the requirements of s. 77(g) of the Act. This is a case where the failure to provide requested information was relevant to the assessment of income contributions by the trustee, rather than to the recovery of substantial assets. It was known to the trustee that the applicant was employed as an accountant on a salary of $40,000 per annum, and the trustee should no doubt have been concerned to establish whether the applicant's work as an employee was generating other notional income that was required to be taken into account in assessing income contributions. We think it is fair to say that the trustee inadequately investigated this possibility. The trustee asked for too little information, and the applicant provided even less information than was sought. We consider his failures to provide information as referred to above sufficiently serious to warrant his discharge from bankruptcy being objected to. We have therefore decided to affirm the decision under review.
We think this case illustrates that there is a need for ITSA's officers to be adequately trained and supervised, particularly when they are called upon to handle bankruptcies with the level of complexity of this one.
I certify that the 49 preceding paragraphs are a true copy of the reasons for the decision herein of Deputy President A M Blow OAM QC., Brigadier C Ermert (Part-time Member) Mr W G McLean (Part-time Member)
Signed: .....................................................................................
Personal AssistantDate/s of Hearing 4, 5 April, 24, 25 May 2000
Date of Decision 8 June 2000
Counsel for the Applicant Mr D Hyde
Solicitors for the Applicant Messrs Oakley Thompson & Co
Counsel for the Respondent Mr M J Galvin
Solicitors for the Respondent Messrs Deacons Graham & James
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