Wortman and Inspector-General in Bankruptcy - [2021] AATA 2919

Wortman and Inspector-General in Bankruptcy [2021] AATA 2919 (18 August 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2019/4131
Re:Michael Wortman
APPLICANT

AndInspector-General in Bankruptcy
RESPONDENT

DECISION
Tribunal:Senior Member K James
Date:18 August 2021
Place:Melbourne

The Tribunal, under section 43 of the Administrative Appeals Tribunal Act 1975 (Cth), affirms the review of the decision made under section 149K of the Bankruptcy Act 1966 (Cth).
........................................................................
Senior Member K James
Catchwords
BANKRUPTCY – whether trustee was entitled to issue a notice of objection - statutory powers of trustee – special ground of objection – if trustee excused the bankrupt – whether the bankrupt had reasonable excuse for non-compliance with the trustee’s statutory power – decision affirmed
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Bankruptcy Act 1966 (Cth)
Evidence Act 1995 (Cth)
Cases
Mulhern v Pearce (No.2) [2014] FCA 805
Neffati and Inspector-General in Bankruptcy [2016] AATA 941
Nguyen v Pattison [2004] FMCA 517
Rimanic and Inspector-General in Bankruptcy [2008] AATA 307
Secondary Materials
Explanatory Memorandum, Bankruptcy Legislation Amendment Bill 2002 (Cth)
REASONS FOR DECISION
Senior Member K James
18 August 2021

On 14 March 2019, a Trustee of the Applicant’s bankrupt estate filed a Notice of Objection to his discharge from bankruptcy. The practical effect of the filing of the notice was to extend the period of bankruptcy by five years to expire on 17 March 2024.
The Applicant first made application to the Inspector General in Bankruptcy (IG in B) seeking a review of the decision of the Trustee to object to his discharge.
On 12 June 2019, the IG in B confirmed the Trustee’s decision. The Applicant has requested the Tribunal to review that decision.[1]
[1] T documents (T) 1 at p.1.
BACKGROUND
The decision of the Trustee and the confirmation by the IG in B was based on many grounds, some of which involved an examination of complex factual situations. At a directions hearing, the Tribunal – with the consent of the parties – made a direction that the hearing be restricted to one of the grounds to be heard, and if that ground permitted the Notice of Objection, a lengthy hearing would not be necessary.
The ground agreed is contained in section 149D(1A) of the Bankruptcy Act 1966 (the Act) in that the Applicant failed to comply with section 77(1)(a)(ii) of the Act, which provides that:
1A bankrupt shall…
(a)forthwith after becoming bankrupt, give to the Trustee, unless excused by the Trustee or prevented by illness or other sufficient cause:
(ii) any passport or document issued for the purposes of travel held by the bankrupt.
Section 149D(1)(a) of the Act is a “special ground”.
Section 149N(1A) provides that an objection by a trustee on a special ground must not be cancelled on review by the IG in B and hence the Tribunal where:
(a)there is sufficient evidence to support the existence of that special ground; and
(b)the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted that special ground.
Importantly, section 149N(1A) does not require the IG in B, and therefore the Tribunal to be satisfied that the reasons given for objecting on that ground or those grounds do not justify the making of the objection.[2] That is, where a special ground has been contravened and the bankrupt fails to establish paragraph (b) above, the IG in B, and the Tribunal on a review, do not have an administrative discretion.
[2] Bankruptcy Act 1966 (Cth) s 149N(1)(c).
The policy behind the introduction of special grounds has been the subject of comment both before the Courts and the Tribunal.[3] The Explanatory Memorandum to the Bill introducing the concept of ‘special grounds’ stated that one of the objects of the Bill was to “strengthen the objection-to-discharge provisions of the Bankruptcy Act 1966 by making it easier for trustees to lodge objections to a person’s discharge from bankruptcy and harder for bankrupts to sustain challenges to objections”.[4]
[3] Nguyen v Pattison [2004] FMCA 517 at [28]-[36]; Neffati and Inspector-General in Bankruptcy [2016] AATA 941 at [24]-[25].
[4] Explanatory Memorandum, Bankruptcy Legislation Amendment Bill 2002 (Cth) at paragraph 3(c).
ONUS OF PROOF
In examining whether there has been a contravention of section 77 (1)(a)(ii), the standard of proof to which the IG in B and the Tribunal must be persuaded, is the standard of proof applicable in civil proceedings in Courts, which is on the ‘balance of probabilities’.[5]
[5] Rimanic and Inspector-General in Bankruptcy [2008] AATA 307 at [31].
In contrast, when considering the application of section 149N(1A), Parliament places the onus on the bankrupt ‘to establish’ that he had a reasonable excuse.[6]
[6] Ibid.
UNCONTESTED FINDINGS OF FACT
The Trustee, at page three of a letter dated 22 July 2015, sent by registered post to the home address given to the Trustee by the Applicant, stated that the Applicant was “required to surrender your passport to me”.[7] The letter enclosed two copies of a notice entitled “Obligations/Responsibilities of a Bankrupt Under the Bankruptcy Act 1966”. The document relevantly states: “A bankrupt is required to give to the Trustee all books …that are in his…possession and relate to his…examinable affairs, and if applicable his…passport”.[8]
[7] T 10 at p.126.
[8] T 10 at p.136.
At a meeting of the Applicant and the Trustee, requested in the above letter, held at the Trustee’s office on 17 August 2015, the Applicant informed the Trustee that he held a passport. As will be discussed later, other conversations at this meeting were contested.
The Trustee sent a letter dated 14 April 2016 by registered post to the Applicant’s same home address, which is relevantly reproduced:[9]
STATEMENT OF AFFAIRS (“SOA”)
I confirm receipt of your SOA as lodged and accepted by the Australian Financial Security Authority (“AFSA”) on 17 March 2016.
Following my review of the information supplied in your SOA, I have identified a number of areas which require further information and/ or clarification. Below I set out particulars of those areas and specifically the information required of you:
‘I require you to provide me with your passport by close of business on 27 April 2017. Section 77(1) of the Bankruptcy Act 1966 (“the Act”) requires that you provide me with your passport. I have enclosed in this letter a registered post envelope for you to send your passport to my office’.
[9] T 10 at p.261.
Section 160 of the Evidence Act 1995 provides that a “postal article sent by prepaid post addressed to the person at a specified address in Australia was received at that address on the seventh working day after having been posted”.
In evidence before the IG in B, and before the Tribunal, the Applicant did not dispute that, at the meeting, he did not surrender his passport to the Trustee as requested in the letter of 22 July 2015. The Applicant had possession of his passport through to 14 March 2019 when the Notice of Objection was filed. The passport was subsequently seized by Victoria Police in March 2020.
There was common ground that the meeting of 17 August 2015 took place.
The Applicant’s evidence was that:[10]
[3] During this meeting, Mr Micheletto asked me if I held an Australian passport and if such passport was with me.
[4] I advised Mr Micheletto that I held a current Australian passport but that it was not with me at such time.
[5] Mr Micheletto advised me that as a bankrupt, I could not travel on my passport without his formal consent. I was aware of these conditions prior to the meeting and advised Mr Micheletto that I had no plans to travel.
[6] Mr Micheletto advised me that he did not require my passport at this time and that if I tried to travel with it, Passport Control at Melbourne airport would contact him anyway as he would be listed on the database as my Trustee.
[7] Whilst this information was of no consequence, I recall being surprised by this element. It was clear that the passport was simply an instrument and that there was a system in place to manage improper activity as a contingency.
[10] Witness Statement of Michael George Wortman dated 25 June 2020 at [3]-[7].
The Trustee gave evidence that:[11]
At the meeting held on 17 August 2015, I explained to the Applicant (inter alia), the bankruptcy process and his duties and obligations. Consistent with those duties and obligations, the Applicant was directed to provide his passport to me. In relation to the Applicant’s assertion that at the meeting I did not intend to hold onto his passport at that time, I say that the Applicant’s assertion is denied, with that denial corroborated by the account of myself and Ms Powell as to the conduct of the meeting and which is set out in the file note referred to in point 7 above.
[11] Statement of Fabian Kane Micheletto dated 23 June 2020 at [8].
The file note referred to in the witness statement records “passport required + travel requirements explained”.[12]
[12] T 10 at p.193.
The author of the file note was not called by the Respondent.
CONTRAVENTION OF SECTION 77(1)(A)(II).
As stated above in paragraph 5, section 77(1)(a)(ii) provides that a bankrupt, unless excused by the Trustee or prevented by illness or other sufficient cause, is required after becoming bankrupt to give to the trustee any passport or document issued for the purposes of travel held by the bankrupt.
The letter dated 14 April 2016, required the Applicant to surrender the passport in the self-addressed enclosed envelope. It is also common ground and is found by the Tribunal that the request was not complied with.
The term “excused by the trustee” in section 77(1)(a)(ii) should be considered in its statutory context.
In Mulhern v Pearce (No 2), it was held that ‘a trustee in bankruptcy has the right to retain the passport of the bankrupt whilst the bankrupt estate is being administered’.[13] The words ‘unless excused by the trustee’ have the purpose and effect of giving the Trustee a discretion as to whether and when that ‘right’ should in the circumstances be exercised.
[13] Mulhern v Pearce(No.2) [2014] FCA 805 at [106].
The Tribunal notes that no evidence was given, or submissions made, that the Applicant was ‘prevented by illness or other sufficient cause’ from complying with the Trustee’s request.
As found in paragraph 12 above, the Trustee, in his letter dated 14 April 2016, exercised his right for the passport to be surrendered to him.
The Applicant was self-represented, and the Tribunal takes his evidence and submissions to be that at the meeting on 17 August 2015 he believed he was excused by the Trustee from producing his passport for the whole period of his bankruptcy. Expressed another way, the Trustee irrevocably released him from an obligation to surrender his passport or, alternatively, the Trustee undertook to refrain from exacting what was a statutory right for the duration of his bankruptcy.
The discretion afforded to the Trustee is not one that can only be exercised once. Its exercise can and should depend upon the circumstances that arise during the bankruptcy administration.
Assuming that such a statement was made at the 17 August 2015 meeting, there is nothing in the Act that prevents or estops the Trustee from changing their mind at any time during the appointed period. If the Applicant had been excused at the August 2015 meeting, it was unambiguously clear in the 14 April 2016 letter that he was now required to surrender his passport. That he did not do by the date requested or at any time up until the date of the Notice of Objection.
The Tribunal notes that the Applicant’s evidence reproduced in paragraph 18 above was that the Trustee ‘did not require my passport at this time’.
The Tribunal finds that, irrespective of what was stated or even agreed at the 17 August 2015 meeting, the Applicant contravened section 77(1)(a)(ii) by not surrendering his passport to his Trustee as required by his letter of 14 April 2016.
In addition to the above finding, the Tribunal finds on the evidence before it, that the Trustee did not agree to excuse the Applicant from surrendering his passport at the 17 August 2015 meeting. All the evidence points to there being a discussion about what would happen at the passport departure gate, if he attempted to leave the country whilst bankrupt. The 17 August 2015, meeting was the first occasion the Trustee had met the Applicant in person. It was at the beginning of the Trustee’s enquiry into the affairs of the bankrupt estate.
The letter requesting the meeting required the Applicant to surrender his passport. On the Applicant’s evidence, at the meeting he did not request an exemption from surrendering it or advance any reason to require an exemption. His evidence was that he stated, “he had no intention of leaving Australia”. There was no reason for an exemption to be given. To provide an irrevocable exemption so early in the administration would raise serious questions of the Trustee’s competence. As would a suggestion that it be made verbally and not documented. Evidence was not put to the Tribunal suggesting any lack of competence by the Trustee.
SPECIAL GROUND
Overlay of section 149N is as follows:
Decision on review
(1) On a review of a decision, if the Inspector-General is satisfied that:
(a) the ground or grounds on which the objection was made was
not a ground or were not grounds specified in subsection 149D(1); or
(b) there is insufficient evidence to support the existence of the ground or grounds of objection; or
(c) the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or
(d) a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled;
the Inspector-General must cancel the objection.
(1A) An objection must not be cancelled under subsection (1) if:
(a) the objection specifies at least one special ground; and
(b) there is sufficient evidence to support the existence of at least one special ground specified in the objection; and
(c) the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted the special ground.
For this purpose, special ground means a ground specified in paragraph 149D(1)(ab), (d), (da), (e), (f), (g), (h), (ha), (ia), (k) or (ma).
(1B) In applying subsection (1A), no notice is to be taken of any conduct of the bankrupt after the time when the ground concerned first commenced to exist.
(2) The cancellation does not take effect until:
(a) the end of the period within which an application may be made to the Administrative Appeals Tribunal for the review of the decision of the Inspector-General; or
(b) if such an application is made--the decision of the Tribunal is given.
(3) If the Inspector-General is not satisfied as mentioned in subsection (1), the Inspector-General must confirm the decision.
The Tribunal notes that if any of subsections 149N(1A)(a), (b) or (c) are not met, the Inspector General, and hence the Tribunal, are required to make their decision in accordance with section 149N(1).
Section 149D(1)(ia) applies where the bankrupt failed to comply with section 77(1)(a)(ii). That is, a contravention of section 77(1)(a)(ii) is a ‘special ground’.
The Tribunal finds that the notice of objection in specifying a contravention of section 77(1)(a)(ii) specifies one ‘special ground’ and there is sufficient evidence to support the existence of that special ground.
The final matter that requires consideration is section 149N(1A)(c), which provides that an objection must not be cancelled if the bankrupt fails to establish that the bankrupt had a reasonable excuse for the conduct or failure that constituted that special ground. If the bankrupt establishes that they had a reasonable excuse for their conduct, the IG in B and the Tribunal have grounds to consider the matter under section 149N(1). This would enliven in the IG in B and the Tribunal a consideration of the exercise of a discretion.
As mentioned in paragraph 11 above, the bankrupt has the burden of establishing that they had a reasonable excuse for the conduct or failure that constituted the special ground.
In considering the word ‘excused’ in section 77(1)(a)(ii), the Tribunal has to look at the actions of the Trustee. As set out in paragraph 22, the Tribunal was examining whether the Trustee was irrevocably releasing the bankrupt or alternatively undertaking to refrain from exercising a statutory right.
The word ‘excuse’ in section 149(1A)(c) is in respect of the actions of the bankrupt. The bankrupt must establish that the bankrupt had a reasonable excuse. Appropriate synonyms for ‘excuse’ could include reason or explanation. It is a different exercise to a consideration of the application of section 77(1)(a)(ii) in paragraph 24 above.
As mentioned above in paragraph 20, the Applicant was self-represented and the nuances of the above analysis of the Act were not at the forefront of his submissions. The Tribunal is required to reach its decision on the evidence before it. Accepting the Applicant’s evidence that he heard the “Trustee to say that he would not require that the passport be surrendered” at the 17 August 2015 meeting, does not explain why he ignored the subsequent request in the 14 April 2016 letter to forward the passport in the enclosed self-addressed envelope by the nominated date. As stated above his evidence was that the statement of the trustee was that the trustee stated that he did not require the passport ‘at this time.
The Applicant did not contest that the 14 April 2016 registered letter was received. The onus of proof is on the Applicant to show that the ‘excuse’, ‘explanation’ or, ‘reason’ was reasonable. The Tribunal finds the 14 April 2016 letter was explicit and clear, he was to surrender his passport in the self-addressed envelope.
This further request to surrender the passport was made after the Trustee’s consideration of the filing by the Applicant of a Statement of Affairs on 17 March 2016, which was subsequent to the discussion relied upon by the Applicant as his reason.
An earlier understanding of an undocumented contrary conversation is not a reasonable ‘excuse’ for ignoring the requirement. If the earlier conversation was in the terms of his evidence, a reasonable action would have been to query why there had been a retreat from the earlier arrangement. His silence is more consistent with a finding that he did not appreciate being told by the Trustee to comply with his requests.
CONCLUSION
The Tribunal finds that the Trustee’s decision to file a Notice of Objection on the ground in subsection 140D(1)(a)(ii) of the Act is upheld.
DECISION
The Tribunal, under section 43 of the Administrative Appeals Tribunal Act 1975 (Cth), affirms the review of the decision made under section 149K of the Act.

I certify that the preceding 48 (forty-eight) paragraphs are a true copy of the reasons for the decision herein of Senior Member K James

...[sgd]....................................................................
Associate
Dated: 18 August 2021

Date of hearing: 5 February 2021

Applicant: Self-Represented

Counsel for the Respondent: Mr Joe Giacco

Solicitors for the Respondent:
McInnes Wilson Lawyers

Date of hearing:	5 February 2021
Applicant:	Self-Represented
Counsel for the Respondent:	Mr Joe Giacco
Solicitors for the Respondent:	McInnes Wilson Lawyers