Case: Frost v Sheahan [2005] FCA 1014
Outcome: referred to
The applicant has previously made an application for an order under s 178. That application was made on 13 December 2004. It was dismissed by Lander J on 28 July 2005: Frost v Sheahan [2005] FCA 1014. 7 The applicant is an accountant. He has tertiary qualifications and considerable experience. He worked as an accountant both before and after he was made bankrupt. As I understand it, he continues to practise as an accountant. 8 At the time of his bankruptcy, the applicant was the joint owner with his wife, Mrs Robyn Frost, of a residential property at Mayfield Crescent, Hallett Cove, South Australia ("Mayfield Crescent property"). He and Mrs Frost have since divorced. At the time of the applicant's bankruptcy, the Mayfield Crescent property was subject to a number of mortgages and it remains subject to those mortgages. There is a first registered mortgage in favour of Australian Finance Company Pty Ltd which secures a debt of approximately $185,000. There are also two registered mortgages in favour of the applicant's solicitor, Mr Paul Richardson, each securing a sum of $50,000 alleged to be unpaid legal fees owed by the applicant to Mr Richardson. 12 Since the applicant's bankruptcy the respondent has filed five objections to the applicant's discharge from bankruptcy. Four notices were filed before the previous proceeding before Lander J was commenced (that is, 13 December 2004) and one was filed after the commencement of the present proceeding on 8 August 2007. 13 The details of the four notices of objection filed by the respondent before the date the previous proceeding was commenced are as follows: 1. The first notice of objection is dated 4 February 2002 and the grounds of the objection were that the applicant had failed to provide to the respondent information in relation to his income and he had failed to disclose in his statement of affairs his interest in the Cullen Bay property. On an application for review the Inspector-General upheld the first ground, but decided to cancel the second ground. On 13 May 2002 the applicant lodged an income questionnaire with the Official Receiver and on 4 June 2002 the respondent filed a notice withdrawing the first notice of objection under s 149J. 2. The second notice of objection is dated 14 June 2002 and the grounds of the objection were that the applicant failed to make income contribution payments pursuant to s 139ZG of the Act . On an application for review, the Inspector-General varied the assessments for CAP1 and CAP2. The Tribunal upheld the Inspector-General's decision on a further application for review and on 20 December 2002 the Official Receiver advised that the objection had been upheld and entered on the National Personal Insolvency Index. Lander J found that this objection was appropriate when made, but had been attended to before his decision. However, Lander J held that the respondent had not erred in refusing to withdraw the second objection even though the applicant had fully responded to it because there were proper reasons for the administration of the estate to continue. 3. The third notice of objection is dated 2 December 2003 and the ground of the objection was that the applicant had engaged in misleading conduct in that he had improperly diverted funds from the bank account relating to the Cullen Bay property to his own use. On an application for review, the Inspector-General decided that the applicant's conduct did not constitute misleading conduct and he cancelled the objection. On 23 July 2004 the Inspector-General advised that the objection was cancelled. 4. The fourth notice of objection is dated 14 July 2004 and the grounds of the objection were that the applicant failed to disclose any particulars of income or expected income as he was required to do by s 139U , and he failed to make payments for which he was liable under s 139ZG. On an application for review the Inspector-General upheld the grounds of objection. Lander J found that the objection was appropriate when filed; he said that he was unable to make a finding as to whether the applicant had satisfied the objection insofar as it relied on the applicant's failure to make payments for which he was liable. However, he found that even if the applicant had made the payments he was required to make, there were proper reasons for the administration of the estate to continue. 14 As I have said, this proceeding was commenced on 8 August 2007. On 12 November 2007 the respondent filed a fifth notice of objection to the applicant's discharge from bankruptcy. The ground of the objection in that notice is the applicant's failure to disclose particulars of income or expected income as required by s 139U. The objection relates to the CAPs commencing on 4 September 2004, 4 September 2005, 4 September 2006 and 4 September 2007 respectively. 15 On 6 March 2008 the applicant filed and served an affidavit sworn by him which annexed his income tax returns for the financial years ended 30 June 2001 to 30 June 2007 inclusive. That was done after this proceeding had been commenced and was done, it seems, to overcome a submission that the applicant had still not provided the information he was required to provide by reason of s 139U. 45 When the matter was before Lander J in the middle of 2005, the question of compliance with the first ground in the fourth notice of objection appears, so far as can be gleaned from his Honour's reasons, to have been given little, if any, prominence by the parties. His Honour did not make an express finding on the matter. Having said that, I note that in the context of considering whether there were proper discretionary reasons for allowing the administration of a bankrupt estate to continue, his Honour found that ongoing inquiries may be made into whether income contributions that had been made to date had been adequate and he said (at [133]): Those investigations may reveal that increased contributions should be made. 46 As I understand it, the applicant submits that the provision of his income tax returns on 6 March 2008, including those for the financial years ended 30 June 2001 to 30 June 2004 inclusive, puts the question of whether he has substantially complied with s 139U in relation to the period from 2000 to 2004 beyond doubt. 47 The position in relation to the period from 2004 to 2007 is clearer than it is in relation the earlier period. As I understand it, the applicant did not provide any information in relation to that period before 6 March 2008 when he provided income tax returns for the financial years ended 30 June 2005 to 30 June 2007 inclusive, and an estimate of his income for the financial year ended 30 June 2008. 59 The applicant sought to meet the argument that there was a proper basis for concluding that further investigations into his income were necessary by making a number of submissions. First, he submitted that the respondent's powers do not end on the applicant's discharge from bankruptcy and he referred, by way of example, to the power of examination in s 81 of the Act , and the continuing obligation on the applicant to assist the respondent under s 152 of the Act . Those matters may be acknowledged, but they are insufficient to suggest that in not withdrawing his objections the respondent should be subject to an order of the Court under s 178. Secondly, the applicant submitted that the respondent had not administered the estate with the diligence required of a reasonably competent trustee in bankruptcy. In the previous proceeding, Lander J made a number of observations about the applicant's failure to co-operate with the respondent in a way which would facilitate the timely administration of his estate (at [5]-[21] and [73]-[92]). I refer to and rely on those findings. Since the previous proceedings the applicant took no steps to provide his income tax returns until 6 March 2008 and he has not provided any group certificates or assessments to the respondent for the financial year ended 30 June 2005 or since. He has been examined on a number of occasions, and on the last occasion, being 31 August 2006, the respondent was still asking the applicant for details of his income. Thereafter, the applicant made no immediate inquiries for his income tax returns allegedly because of health problems. In those circumstances, the greater part of any delay has been caused by the applicant, and, if there has been any delay by the respondent, it is not of such a nature to overcome the other reasons supporting the respondent's decision not to withdraw the objections. 60 In conclusion, the first ground in the fourth notice of objection and the ground in the fifth notice of objection have not been substantially complied with. In those circumstances, the application should be dismissed. In the alternative, further investigations into the applicant's income since the commencement of his bankruptcy, or at least from 2004 to date, are warranted and that conclusion, when considered with other discretionary matters, in turn leads to the conclusion that the application should be dismissed. Before identifying those other discretionary considerations, I should deal with the second ground in the fourth notice of objection. 61 The second ground of objection in the fourth notice of objection is based on s 149D(1)(f) of the Act and is the failure by the applicant to make payments he was liable to pay under s 139ZG. This ground was the subject of a good deal of evidence but only brief submissions from counsel for the respective parties. As I understand it, it is common ground that as at the date of the fourth notice of objection, that is, 14 July 2004, the applicant was liable to pay the respondent the sum of $4,217.67 by way of income contribution, that is, under s 139ZG. It is common ground that by letter dated 28 November 2004 the applicant forwarded the sum of $4,217.67 to the respondent stating that he wished to discharge that liability. The respondent accepted the payment and the applicant submitted that the liability was thereby discharged. The respondent contended that he was entitled to and did apply the money in partial discharge of the applicant's liability to the respondent in the sum of $10,560 and that the liability for $4,217.67 for income contribution remains extant. 79 I summarise my conclusions as follows. The applicant has not substantially complied with the first ground in the fourth notice of objection and the ground in the fifth notice of objection. In addition, discretionary reasons favour allowing the bankruptcy to continue. In the alternative, the applicant has not provided to the respondent sufficient information to enable him to perform properly his obligations to make income contribution assessments and the evidence establishes that further inquiries and investigations are warranted particularly for the period from 2004 to date. The Family Court proceedings mean that there is a prospect of a dividend being paid to creditors. It is true that the applicant will remain bankrupt for eight years and that is a matter which must be taken into account. Nevertheless, as the reasons for judgment of Lander J in the previous proceeding indicate, the delay has largely resulted from the applicant's own conduct. In my opinion, this is not a proper case for an order under s 178. 80 For the above reasons, the application is dismissed. I will hear the parties as to costs and any other orders. I certify that the preceding eighty (80) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko. Associate: Dated: 25 July 2008 Counsel for the Applicant: Mr G Dart Solicitor for the Applicant: Mr P A Richardson Counsel for the Respondent: Mr G Gretsas Solicitor for the Respondent: Gretsas &amp; Associates Date of Hearing: 17, 18, 19 March 2008 Date of Judgment: 25 July 2008 AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback URL: http://www.austlii.edu.au/au/cases/cth/FCA/2008/1073.html