we eee IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION, BANKRUPTCY DISTRICT No. P4 of 1983 OF THE STATE OF NEW SOUTH WALES AND wee THE AUSTRALIAN CAPITAL TERRITORY BETWEEN: THE DEPUTY COMMISSIONER OF TAXATION Applicant AND: PETER LEOPOLD CLYNE Judgment Debtor GORRIGENDA Amendment to the judgment of the Honourable Mr. Justice Neaves of 17 August 1983. - page 10 line 4 substitute "per Mason J." for "per Gibts C.J." - page 26 line 21 substitute "conferred on the" for "conferred by the". ang O°Ca~ > JANE O'CONNOR ASSOCIATE TO NEAVES J. 15 September 1983. cATCHWORDS Bankruptcy - Application under s. 50 of the Bankruptcy Act a 1966 that Official Trustee take control of judgment debtor's property - validity of section 50 - creditor's petition based on debt for income tax - dispute as to liability - validity of bankruptcy notice on which petition based subject to other proceedings - companies used as repositories of moneys coming to the judgment debtor's hands - moneys period- ically remitted overseas - whether order necessary in the interests of the creditors - whether order must specify particular property - exercise of discretion - ancillary orders. Bankruptcy Act 1966 s.50 Income Tax Assessment Act 1936 s. 218 Constitution Clyne v. Deputy Commissioner of Taxation (1982) 56 A.L.J.R. 857 Clyne v. Deputy Commissioner of Taxation (1982) 82 A.T.C. 4484 Clyne v. Deputy Commissioner of Taxation (1982) 82 A.T.C. 4680 Clyne v. Deputy Commissioner of Taxation (1982) 82 A.T.C. 4648 Clyne v. Deputy Commissioner of Taxation (1982) 82 A.T.C. 489 Attorney-General of Ontario v. Attorney-General for the ominion of Canada [1894] A.C. I8y Le Mesurier v. Connor (1929) 42 C.L.R. 481 The Commonwealth v. Tasmania (1983) unreported. P4 of 1983 The Deputy Commissioner of Taxation v. Peter Leopold Clyne Neaves J. 17 August, 1983 Canberra IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION, BANKRUPTCY DISTRICT No. P4 of 1983 OF THE STATE OF NEW SOUTH WALES AND ddd THE AUSTRALIAN CAPITAL TERRITORY BETWEEN: THE DEPUTY COMMISSIONER OF TAXATION Applicant AND: PETER LEOPOLD CLYNE Judgment Debtor ORDER JUDGE MAKING ORDER: Neaves J. DATE OF ORDER: 17 August 1983. WHERE MADE: Canberra THE COURT ORDERS: 1. That the Official Trustee in Bankruptcy take control of the property of the judgment debtor until further order. 2. That the Official Trustee in Bankruptcy open an account in the joint names of the judgment debtor and the Official Trustee with a trading bank within the city of Sydney and arrange with the said bank that moneys may be withdrawn from the said account only upon the authority of the Official Trustee in Bankruptcy or a nominated officer of such Official Trustee. That the Official Trustee in Bankruptcy furnish to the judgment debtor and to the applicant within 24 hours of the account being opened details of the said account. That the judgment debtor deposit with the said bank for the credit of the said account all moneys, cheques, negotiable instruments and other documents and instruments representing money received by the judgment debtor on or after the date of this order in respect of advice given or services performed by the judgment debtor (whether before or after the date of this order) in or in connection with his activities as a consultant on legal, taxation or financial matters or in respect of any other business activities carried on by him (whether before or after the date of this order) or by way of advances or royalties in respect of books written or to be written by the judgment debtor That the judgment debtor take all necessary steps to ensure that all moneys, cheques, negotiable instruments and other documents and instruments representing money received by any company on or after the date of this order in respect of advice given or services performed by the judgment debtor (whether before or after the date of this order) in or in connection with his activities as a consultant on legal, taxation or financial matters or in respect of any other business activities carried on by him (whether before or after the date of this order) or by way of advances or royalties in respect of books written or to be written by the judgment debtor are deposited with the said bank for the credit of the said account. That the judgment debtor keep adequate records of all moneys, cheques, negotiable instruments and other documents and instruments representing money to which the preceding orders relate and deliver such records to the Official Trustee in Bankruptcy whenever requested to do so by the said Official Trustee. That the Official Trustee in Bankruptcy be authorised to make payment out of the said account of such business and reasonable living expenses of the judgment debtor as the said Official Trustee shall approve. That the applicant be restrained until further order from issuing any notice in writing pursuant to section 218 of the Income Tax Assessment Act 1936 directed to the said bank in relation to the said account. That the judgment debtor before 4.00 p.m. on 22 August 1983 deliver to the Official Trustee in Bankruptcy at St. James Centre, 111 Elizabeth Street, Sydney - (a) all the books, documents, papers and writings in his possession or power relating to his trade dealings, property or affairs; (b) all the books, documents, papers and writings in his possession or power relating to the trade dealings, property or affairs of Nesseldorf Pty. Limited, Sharsie Pty. Limited, Metropolitan Mortgage Investment Corporation Pty. Limited, 10. il. Oeax 3 Pty. Limited, Nadove Pty. Limited, Peter Clyne International Pty. Limited and any other company of which the judgment debtor is a director or in which he owns beneficially any share; and . (c) all share certificates held by him in Nesseldorf Pty. Limited, Sharsie Pty. Limited, Metropolitan Mortgage Investment Corporation Pty. Limited, Oeax 3 Pty. Limited, Nadove Pty. Limited, Peter Clyne International Pty. Limited and any other company in which he owns beneficially any share. That the judgment debtor be restrained, without the prior approval of the Court, from paying, lending or depositing any money with, or transferring or delivering any property to, a person who, or a company which, is an "associate" within the meaning of that expression as defined in sub-section 82KH(1) of the Income Tax Assessment Act 1936 of the judgment debtor or who or which would be an "associate" as so defined of the judgment debtor if the judgment debtor were a taxpayer within the meaning of that expression as used in the said sub-section. That the judgment debtor be restrained, without the prior approval of the Court, from remitting, transferring, sending or taking moneys or other property out of Australia provided that this order shall not operate to restrain the judgment debtor in the event of his travelling overseas from taking with him such amount 12. 13. 14. 15. 16. 17. by way of reasonable travelling expenses as the Official Trustee in Bankruptcy shall approve. That the judgment debtor take all necessary steps to ensure that, without the prior approval of the Court, no moneys received by any company prior to the date of this order in respect of advice given or services per- formed by the judgment debtor in or in connection with his activities as a consultant on legal, taxation or financial matters or in respect of any other business activities carried on by him or by way of advances or royalties in respect of books written or to be written by the judgment debtor are remitted, transferred, sent or taken out of Australia. That the judgment debtor take all necessary steps to ensure that the deed of agreement expressed to be made the eighth day of August 1983 between the judgment debtor and Nesseldorf Pty. Limited is not executed by or on behalf of the said company. That the judgment debtor be restrained without the prior approval of the Court from releasing any person or company from any indebtedness of that person or company to the judgment debtor. That the parties have liberty to apply. That the judgment debtor pay the applicant's costs of and incidental to the application. That the application by the judgment debtor that this order be stayed or that its operation be suspended be refused. IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION, BANKRUPTCY DISTRICT OF THE STATE OF NEW SOUTH WALES AND THE AUSTRALIAN CAPITAL TERRITORY No. P4 of 1983 ee we SS BETWEEN: THE DEPUTY COMMISSIONER OF TAXATION Applicant AND: PETER LEOPOLD CLYNE Judgment Debtor CORAM: Neaves J. DATE: 17 August 1983. REASONS FOR JUDGMENT This is an application by the Deputy Commissioner of Taxation for an order under section 50 of the Bankruptcy Act 1966 directing the Official Trustee to take control of the property of Peter Leopold Clyne ("the judgment debtor") . and for ancillary orders. Section 50 provides: - "C1) I£, on application by a creditor, it is shown to be necessary in the interests of the creditors, the Court may, at any time after the presentation of a creditor's petition and before sequestration, direct the Official Trustee or a specified registered trustee to take control of the property of the debtor and may make such orders in relation to that property as the Court considers just. & (2) Without limiting the generality of sub- section (1), the Court may, at any time after giving a direction under sub-section (1), summon - (a) the debtor or the spouse of the debtor; or (b) any person who is known or suspected to have in his possession any of the property of the debtor, or is supposed to be indebted to the debtor or to be able to give inform- ation concerning the debtor or his trade dealings, propertyor affairs, to attend, on a date and at a time and place fixed in the summons, before the Court or the Registrar or, if the Court thinks fit, before a magistrate, to give evidence concerning, and produce any books in his custody or power relating to, the debtor or his trade dealings, property or affairs, and, where the Court issues such a summons, the provisions of section 81 apply, subject to such modifications and adaptations (if any) as are prescribed by the rules, for the purpose of such an examination of the person so sum- moned under this section as if the debtor were a bankrupt and the examination were an examination under section 81. (3) In this section, 'modification' includes the addition or omission of a provision or the substitu- tion of a provision for another provision." The general powers of the Court under section 30 of the Bankruptcy Act 1966 are also called in aid. The Deputy Commissioner of Taxation is a ereditor of the judgment debtor and has presented a ereditor's petition for the making of a sequestration order against the judgment debtor's estate. That petition, which was presented on 4 January 1983, claims that the judgment debtor is justly and truly indebted to the appli- cant in the sum of $1,300,844.63 being the balance due under a final judgment recovered in the Supreme Court of New South Wales on 11 March 1982, together with interest thereon, and amounts due for income tax and additional tax in respect of the years ended 30 June 1980 and 30 June 1981. The act of bankruptcy relied upon is alleged to have been committed on 24 December 1982. The judgment referred to was entered in favour of the applicant in the sum of $334,826.25 and was in respect of income tax assessed in respect of the years ended 30 June 1977, 30 June 1978 and 30 June 1979, additional tax, and provisional tax ascertained in respect of the year ended 30 June 1980. In arriving at the amount for which judgment was entered credit was given for the sum of $108,829.27 recovered by the applicant by virtue of the issue and service of notices under section 218 of the Income Tax Assessment Act 1936. An appeal from that judgment to the Court of Appeal of the Supreme Court of New South Wales was dismissed on 8 October 1982. The judgment debtor lodged an appeal to the High Court and gave security for the costs of that appeal, thus effecting a stay of the judgment appealed from (see Judiciary Act 1903, section 775 and High Court Rules, Order 70 rule 12). On 14 October 1982 Mason J. ordered that the stay be removed (Clyne v. Deputy Commissioner of Taxation (1982) 56 A.L.J.R. 857). The appeal is still pending but there is evidence before me, not disputed, that the judgment debtor does not propose to prosecute that appeal and will consent to an order dismissing the appeal with costs. On 13 August 1982 the judgment debtor was served with a bankruptcy notice issued on behalf of the applicant and based unon the non payment (except for the sum of 58 cents) of the judgment debt. (A bankruptcy notice had 3. been issued on 4 May 1982 but that notice was set aside by Lockhart J. in this Court on 13 August 1982). The judgment debtor instituted proceedings to set aside the bankruptcy notice issued on 13 August 1982. That application was dismissed by Lockhart J. on 11 October 1982 (Clyne v. Deputy Commissioner of Taxation (1982) 82 A.T.C. 4484) and an appeal to the Full Court of this Court was dismissed on 17 December 1982 (Clyne v. Deputy Commissioner of Taxation (1982) 82 A.T.C. 4690). The time for compliance with the bankruptcy notice was extended from time to time but no further exten- sion was granted beyond 24 December 1982. An appeal to the High Court from the decision of the Full Court of this Court is pending and has been set down for hearing at the sittings of the High Court appointed to commence at Canberra on 30 August 1983. The hearing of the creditor's petition based on the failure of the judgment debtor to comply with the re- quirements of the bankruptcy notice referred to presently stands adjourned until 19 September 1983. On 30 November 1982 the judgment debtor took other proceedings in this Court seeking a declaration that he had a cross-claim equal to or exceeding the amount of the judgment debt, being a cross-claim that he could not have set up in the action in which the judgment on which the bankruptcy notice was based was obtained. The cross-claim was based on an allegation that the judgment debtor was entitled to damages for defamation in respect of a speech made by the Commissioner of Taxation on 4 November 1982. An action claiming such damages had been instituted by the judgment debtor in the Supreme Court of New South Wales on 12 Nov- ember 1982 naming as defendants the Commonwealth of Australia, the Federal Commissioner of Taxation and John Fairfax and Sons Pty. Limited. On 15 December 1982 the application was dismissed by McGregor J. (Clyne v. Deputy Commissioner of Taxation (1982) 82 A.T.C. 4648). An appeal to the Full Court of this Court was dismissed by consent on 17 May 1983. The defamation proceedings in the Supreme Court of New South Wales have been discontinued. The judgment debtor lodged an objection against his assessment to income tax in respect of the year ended 30 June 1977 and when that objection was disallowed he requested that it be treated as an appeal and referred to the Supreme Court of New South Wales. The appeal so insti- tuted was dismissed for want of prosecution on 1 March 1982 and an appeal to the Full Court of this Court was dismissed on 20 August 1982. The objections lodged by the judgment debtor against assessments and amended assessments to income tax zn respect of the years ended 30 June 1978, 30 June 1979 and 30 June 1980, upon disallowance, were at his request treated as appeals and referred to the Taxation Board of Review. On 23 November 1982 Taxation Board of Review No. 1 unanimously upheld the assessments and amended assessments (Clyne v. Federal Commissioner of Taxation (1982) 82 A.T.C. 489, 520, 540). The principal issue before the Taxation Board of Review was whether the income arising from the activities of the judgment debtor as a consultant on legal, taxation and finance matters was income derived by the judgment debtor or, as he alleged, by a Liechtenstein Anstalt. Appeals on this issue were taken to the Supreme Court of New South Wales. On 12 August 1983 those appeals were dismissed with costs. An objection has also been lodged by the judgment debtor against his assessment to income tax in respect of the year ended 30 June 1981 but a decision thereon has not yet been notified to him. There is no evidence before me of an assessment having been made in respect of the year ended 30 June 1982. It is convenient to deal at this stage with the submissions made by the judgment debtor challenging the constitutional validity of section 50 of the Bankruptcy Act 1966 under which these proceedings are brought. It was submitted that section 50 could not be supported in point of constitutional validity as a law with respect to bankruptcy and insolvency (Constitution, section 51(xvii)) or under the incidental power (Constitution, section (xxxiv)). In the alternative it was submitted that section 50 was invalid as being a law for the acquisition of property on other than just terms (Constitution, section 51(xxxi)). It is unnecessary in this case, and it would be unwise to attempt, to state in any comprehensive way what falls within the purview of the expression "bankruptcy and insolvency" in section 51(xvii) of the Constitution. Quick and Garran in The Annotated Constitution of the Australian Commonwealth at p. 586 refer to the general scope of the power in the following terms: - "Bankruptcy and insolvency legislation is a most comprehensive subject. Generally stated, it embraces a large part of the law regulating the relations of debtor and creditor, before and during insolvency; the acts or defaults of a debtor which render him amenable to what Wharton in his work on Private International Law describes as 'National execution against the assets of an insolvent debtor;' the organization of insolvency and bankruptcy courts and proceedings in connection therewith; the investi-- gation of the business dealings and transactions of an insolvent; the pursuit and recovery of assets fraudulently disposed of in order to defeat creditors; the rescission of voluntary conveyances and other transactions amounting to fraudulent preferences; the effect of legal executions at the suit of judgment ereditors; what is protected from and what liable to such executions; the seizure of an insolvent's assets for the benefit of his creditors generally; the dis- tribution of his assets among his creditors; the re- lease, partial or conditional or absolute, of an honest but unfortunate debtor; the punishment of a dishonest debtor. Bankruptcy and insolvency law may also include compositions, compromises, arrangements, and assignments for the benefit of creditors, as alternatives to compulsory insolvency. The winding up of corporations unable to pay their debts is an important branch of insolvency jurisdiction. An insolvency law would also include all ancillary . provisions necessary to prevent it from being defeated." Assitance in considering the scope of the power is also to be found in the judgment of the Privy Council in Attorney-General of Ontario v. Attorney-General for the Dominion of Canada [1894] A.C. 189. Delivering the judgment of their Lordships, Lord Herschell said atp. 200:- "It is not necessary in their Lordships' opinion, nor would it be expedient to attempt to define, what is covered by the words 'bankruptcy' and 'insolvency' in sect. 91 of the British North America Act. But it will be seen that it is a feature common to all the systems of bankruptcy and insolvency to which reference has been made, that the enactments are designed to secure that in the case of an insolvent person his assets shall be rateably distributed amongst his creditors whether he is willing that they shall be so distributed or not. Although provision may be made for a voluntary assignment as an alternative, it is only as an alternative. In reply to a question put by their Lordships the learned counsel for the res- pondent were unable to point to any scheme of bank- ruptcy or insolvency legislation which did not involve some power of compulsion by process of law to secure to the creditors the distribution amongst them of the insolvent debtor's estate. "In their Lordships' opinion these considerations must be borne in mind when interpreting the words 'bankruptcy' and 'insolvency' inthe British North America Act. It appears to their Lordships that such provisions as are found in the enactment in question, relating as they do to assignments purely voluntary, do not infringe on the exclusive legis- lative power conferred upon the Dominion Parliament. They would observe that a system of bankruptcy legis- lation may frequently require various ancillary provisions for the purpose of preventing the scheme of the Act from being defeated. It may be necessary for this purpose to deal with the effect of executions and other matters which would otherwise be within the legislative competence of the provincial legislature. Their Lordships do not doubt that it would be open to the Dominion Parliament to deal with such matters as part of a bankruptcy law, and the provincial legislature would doubtless be then precluded from interfering with this legislation inasmuch as such interference would affect the bankruptcy law of the Dominion Parliament. But it does not follow that such subjects, as might properly be treated as ancillary to such a law and therefore within the powers of the Dominion Parliament, are excluded from the legislative authority of the provincial legislature when there is no bankruptcy or insolvency legislation of the Dominion Parliament in existence." Reference might also be made to Le Mesurier v. Connor (1929) 42 C.L.R. 481 per Isaacs J. at p. 508. Section 50 of the Bankruptcy Act 1966 has no operation until a creditor's petition has been presented. To found such a petition the debtor must have committed an act of bankruptcy (paragraph 43(1)(a) of that Act) and, at the time when that act of bankruptcy was committed, have satisfied one or other of the requirements set out in paragraph 43(1)(b). Before exercising power under the section it must be shown that relief of the kind which the section envisages is "necessary in the interests of the creditors". The direction that may be given to the Official Trustee or a specified registered trustee is to "take control" of the property of the debtor. The section is clearly a provision in aid of the ereditors of a debtor who has already committed an act of bankruptcy and has a creditor's petition pending against him. It is a necessary and ancillary provision designed to enable appropriate steps to be taken to preserve and protect the property of a debtor so that, in the event of a sequestration order being made, that property will be available for distribution equitably amongst them in accordance with the statutory provisions contained elsewhere in the Bankruptcy Act 1966. That this is its purpose is reinforced by a consideration of the provisions contained 1n sub-section 50(2) with their emphasis on obtaining information concern- ing the debtor or his trade dealings, property or affairs. The argument that section 50 is a law with respect to the acquisition of property within section 51(xxxi) of the Gonstitution was not strongly presscd in the light of what was said in The Commonwealth v. Tasmania (1983) - unreported particularly per Gibbs C.J. at p. 107 and per Deane J. at p. 265. - In my opinion the submission that section 50 of the Bankruptcy Act 1966 is invalid should be rejected. I return to a consideration of the evidence before me. Included in the documents received in evidence are certain books written by the judgment debtor, the transcript of the proceedings before Lockhart J. on the judgment debtor's application to set aside the bankruptcy notice issued on 13 August 1982, the transcript of the proceedings before McGregor J. for a declaration that the judgment debtor had a cross-claim based on alleged defamatory statements made by the Commissioner of Taxation and the transcript of the proceedings before Taxation Board of Review No. 1 to which reference has already been made. Much of this material was before Lockhart J. and his Honour refers to it and sets out extracts from it in his reasons for judgment: see (1982) 82 A.T.C. 4484 at pp. 4488-91. It is unnecessary for me to set out that material again in these reasons. I rely on the extracts there set out and I respectfully agree with and adopt what his Honour said. I content myself with quoting one passage, the references therein to "the applicant" being clearly to the judgment debtor in these proceedings 10. and the references to "the respondent" being to the Deputy Commissioner of Taxation. The passage at p. 4491 reads:- "It is plain that the applicant intends to do everything in his power to delay proceedings between himself and the respondent for as long as possible in whichever Court or Tribunal they are in conflict.. He has no intention of paying any moneys to the respondent notwithstanding the existence of the Supreme Court judgment. His avowed purpose is to frustrate and delay the respondent in every way possible in his attempt to recover the tax which is due to the respondent. Although he receives remuneration for his services in Australia, he takes steps to ensure that the respondent will never be able to obtain payment of the tax. He is an expert at placing assets beyond the respondent's reach and has no scruples about doing so. If the day comes when the applicant is made bankrupt he intends to ensure that there will be no property which can be seized for the benefit of his creditors. The applicant seeks to use the Courts as pawns in his game against the respondent." In addition to the material mentioned by Lockhart J. I should refer to an affidavit sworn by the judgment debtor on 25 August 1981 and filed in certain proceedings then pending in the Supreme Court of New South Wales. The reference in the affidavit to a sequestration order is a reference to such an order made against the judgment debtor on 10 March 1972. Paragraph 79 of that affidavit reads:- "Two days before the sequestration order, . on my instructions, two of my companies completed the sale of some cottages, and the proceeds were sent to Switzerland and paid into my Swiss account. It turned out later that this was no breach of the law. The companies owed no money to anyone, and although it is a crime for a person about to go bankrupt to transfer his otm assets, it is not a crime if he arranges For his companies to transfer assets, even though he knows that later his trustee will wind up the companies voluntarily, as happened in my case. Be this as it may, I am making no attempt to justify this money transfer morally or 11. commercially. The right thing to do would have been to make the companies' money available to my creditors." Concerning the transfer of money out of Australia, the judgment debtor's approach is reflected in chapter 35 of his book entitled "How to Reduce Your Next Tax Bill to Twenty Cents in the Dollar". The following extract is instructive: - "But Reserve Bank approval is still necessary, and the procedure is quite complicated, and may cost you up to 10% of the amount involved ... 1. You apply to the Reserve Bank for approval to buy $100,000 worth of say Hoffman-Laroche shares. (I normally choose these as they are stable and safe shares unlikely to fluctuate much while the procedure is going ahead.) You can make this application personally, or through your local bank, or through your pro- fessional adviser, accountant, or Lawyer. The Reserve Bank, under the new guidelines, issues its approval as a matter of course, and there is no delay. But one of the conditions in the letter of approval will be that you must produce, to your local bank, a telex or letter confirming that the shares have been bought. This is OK if an overseas broker is used. But in Austria we have no brokers, so I have a friendly bank which ... though this is contrary to Austrian law ... stretches a point, buys the shares without having any money ... the share scrip is security ... and sends you a telex confirming that the shares have been bought, and will you please pay for them urgently. With this telex and the Reserve Bank's letter cf approval, you go to your local bank and obtain an international bank draft which you send to the broker or the Viennese bank. Alter- natively, the local bank will tranfer the money by telex. Now you can sell the shares again, and bank or re-invest the money. But this is naughty; the Reserve Bank says you should tell them about the sale and bring back the money ... but how can they possibly know whether you sell the shares or retain them. Alternatively, if the shares are blue-chip, you might as well stay virtuous and keep them for a 12. while. They are likely to yield as good a return as your secret account, and you make money if they rise." The judgment debtor has for a number of years carried on, and still carries on, a business which he des- cribes as that of a consultant on legal, taxation and fin- ancial matters. He has received and continues to receive substantial sums of money, either by cash or cheque, in respect of the advice given to, and other services performed for, the persons from whom the moneys are received. He deposits moneys he receives in bank accounts operated by companies controlled by him. Expenditure, both business and private, which he incurs is met by those companies. Names of several companies have been referred to in the various proceedings between the judgment debtor and the Deputy Commissioner of Taxation including Metropolitan Mortgage Investment Corporation Pty. Limited, Oeax 3 Pty. Limited, Nadove Pty. Limited, Peter Clyne International Pty. Limited, Nesseldorf Pty. Limited and Sharsie Pty. Limited. It appears from correspondence passing between the judgment debtor and the Reserve Bank of Australia and _ other documents in evidence before me that in February 1981 authority was given under the Banking (Foreign Exchange) Regulations For the judgment debtor to arrange remittance of foreign currency equivalent to $100,000 to Austria for the purchase of an apartment in Vienna. Subsequently approval was given for the remittance of foreign currency 13. equivalent to $30,000 to Austria for the purchase of furnishings for the apartment. 'lhe requisite funds were transmitted but the purchase did not proceed. By letter dated 12 April 1983 to the Reserve Bank the judgment debtor stated that he proposed to instruct his Vienna bank to send the equivalent of $90,000 to Australia (being the sum of $100,000 less a deposit of 10% paid to the vendor) and sought the consent of the Bank to such transfer. By letter dated 15 April 1983 the Reserve Bank informed the judgment debtor that authority as necessary under the Banking (Foreign Exchange) Regulations was given, valid for two months, for the judgment debtor to arrange remittance of the foreign currency equivalent to $A90,000 to Australia from balances standing to his credit in Austria and to sell the foreign currency to a bank in Australia. By letter dated 1 May 1983 the judgment debtor informed the Reserve Bank that the sum of $90,000 had been repatriated to Australia. He further stated that his bank in Vienna, the Creditanstalt Bankverein, had used Austrian schilling funds to purchase Australian dollars in Austria to the value of $A90,000; that the $490,000 was transferred to the A.N.Z. Bank, 353 Elizabeth Street, Melbourne and there placed to the credit of the trust account of his Melbourne solicitors, Messrs. C. Wantrup and Associates; and that on 28 April 1983 Messrs. C. Wantrup and Associates had drawn to bank cheques in his favour, one for $75,000 and one for $15,000 and had accounted to him for the whole of the proceeds of the money transferred from Vienna. 14. The judgment debtor in evidence before McGregor J. in the proceedings to which I have referred said thal the moneys remitted for the purchase of the apartment and its furnishings were in fact expended in connection with the production for sale by the judgment debtor of a gramophone recording, a venture which was not successful. The use by I the judgment debtor of the word "repatriate" in relation to the sum of $90,000 is somewhat misleading as it is clear from his letter to Messrs. C. Wantrup and Associates, which bears the typewritten date 18 July 1983, that he borrowed that sum from his bank in Austria to enable him "to repatriate this sum to Australia". It further appears from the material before me that the cheque for $15,000 (cheque No. 155099) was endorsed in favour of George Kouvaras, a solicitor with the firm of Messrs. C. Wantrup and Associates. In a letter dated 14 May 1983 to the Deputy Commissioner of Taxation, the judgment debtor, speaking of this cheque, wrote:- "The other, for $15,000 ... this being the cheque with which you are concerned ... was indorsed to Mr. George Kouvaras, solicitor, as a personal loan. To prevent any effective notice being served on Mr. Kouvaras under sec. 218, this loan has been doc- umented as a Loan by one of my companies, Nadove Pty. Ltd., to Mr. Kouvaras; the company has adopted the payment made by me as having been made on its behalf." Beyond saying im his letter dated 14 May 1983 to the Deputy Commissioner of Taxation that the cheque for $75,000 (cheque No. 155097) had been retained by himself, 15. the judgment debtor declined to furnish any further informa- tion to the Deputy Commissioner of Taxation in relation to that cheque. The cheque is in evidence before me and it bears an endorsement by the judgment debtor dated 28 April 1983 in favour of Sharsie Pty. Limited. - Sharsie Pty. Limited is a company incorporated in Victoria on 2 March 1983. Although the judgment debtor is not shown in any of the documents lodged by that company at the office of the Commissioner of Corporate Affairs in Victoria as being a shareholder, there is no doubt that the company is, in fact, controlled by the judgment debtor. It carries on no business in its own right, its sole purpose being as a vehicle through which the judgment debtor may conduct his financial transactions. By letter dated 22 April 1983 to the Reserve Bank of Australia Mr. Edward Curmi, sclicitor for Sharsie Pty. Limited, sought on his client's behalf approval for the purchase by his client of Hoffman~-Laroche shares to the value of $95,000, it being stated that the shares were being purchased for his client by the Creditanstalt Bank- verein in Vienna. Authority was given, valid for two months and subject to certain conditions, and Mr. Curmi was so advised by letter dated 26 April 1983. Formal authority was sought on 19 May 1983 by the company under the judgment debtor's signature for the remittance of the equivalent of $489,133.29 to Austria as the purchase price of the shares 16. and authority was given on that day. That amount was on the same day debited to the company's account with the National Australia Bank, an account which was opened on 12 May 1983, and remitted overseas. It is clear that the source of the funds to finance the remittance to Austria was, in large part, the bank cheque for $75,000 (cheque No. 155097) to which I have already referred. The amount of that cheque had been eredited to the account on 18 May 1983. The balance of the funds remitted represented the proceeds of two bank cheques in favour of Nesseldorf Pty. Limited for $15,000 and $10,000 respectively also credited to the account on 18 May 1983. Nesseldorf Pty. Limited is a company incorporated in Victoria on 24 September 1982 and 1s wholly owned and controlled by the judgment debtor. It also conducts no business on its own account but is used by the judgment debtor for his own financial dealings. By letter dated 28 October 1982 Mr. Edward Curmi, Solicitor, acting on behalf of Nesseldorf Pty. Limited sought the approval of the Reserve Bank of Australia to the acquisition in Vienna by his clienc of Hoffman-Laroche shares to the value of $450,000, the shares being purchased by the Creditanstalt Bankverein in that city. Similar requests un respect of further sums of SA50,000 were made on behalf of the company by letters dated 3 February 1983 and 9 March 1983 and approval was given in each case. The amounts remitted to Vienna pursuant to those approvals were $48,519.77, $46,402.19 and $46,186.88 making a total of $141,108.84. 17. Between 11 October 1982 when the company's account with the Australia and New Zealand Banking Group Limited, Queen Street, Melbourne was opened and 4 July 1983 when it was closed at the bank's direction, the amounts eredited to the account totalled $245,477. Of that total $166,108.84 has been shown to have been remitted overseas, being the sums totalling $141,108.84 referred to above and the proceeds of the bank cheques for $15,000 and $10,000 respectively which provided part of the source for the amount of $89,133.29 remitted to Austria by Sharsie Pty. Limited. A further sum of $40,000 was withdrawn from the account in cash on 14 November 1982. It is also a consequence of the transactions to which I have adverted that the amount of $90,000 which the judgment debtor stated had been repatriated to Australia has again been remitted overseas. The judgment debtor in his letter dated 18 July 1983 to Messrs. C. Wantrup and Associates to which I have already referred in connection with the repatriation of the amount of $90,000 has put the following complexion on the transactions: - "This letter is written to put on record a number of recent transactions between myself and the company. I would be grateful if you would place this letter in the Nesseldorf file. "On the 15th November 1982, I lent the company the sum of $50,000-00 for the acquisition of Hoffman- Laroche shares, the money being repayable within a year, and this was documented by an appropriate Loan Agreement. The company duly did acquire the shares and these were lodged with its overseas Bank, Creditanstalt Bankverein, Vienna. The amount spent on the shares was not exactly $50,000-00 but approximately that much, and the balance was retained by the company. 18. "A similar transaction took place on or about the 18 February 1983 $50,000-00 was Lent to the company, the loan was duly documented, and approximately that much was spent on shares, the shares being deposited with the same Bank in Vienna. "A similar transaction took place on 8 April 1983. TI lent the company $50,000-00 and the company bought overseas shares in the value of $46,186-00 which have been deposited with the same bank in Vienna. "Subsequently, I borrowed $90,000-00 from the Viennese Bank, Creditanstalt Bankverein, in order to enable me to repatriate this sum to Australia. "As you know, in January 1981 I obtained permission to transfer $100,000-00 to Vienna to acquire an apartment. The purchase did not proceed and, in accordance with the conditions imposed by the Reserve Bank, $90,000-00 was brought back to Australia. The Reserve Bank requires me to repatriate a further $10,000-00 and this will be done shortly. "The Viennese Bank is lending me this money on the security of the shares lodged by Nesseldorf Company Pty. Limited, and to the extent that the company's shares are being pledged as aforesaid the relevant amount should be treated as being in repayment, partially, of the amounts lent by me originally to the company. "This letter replaces my previous letter of 12 April 1983 since the circumstances have slightly varied and the Reserve Bank does not appear to require me to repatriate a further $30,000-00 sent overseas for furniture for the apartment, as at one stage I anticipated that it might do. "Would you be kind enough to write back to me as soon as possible on behalf of the company and confirm that the above arrangements are acceptable to the . company." On 8 August 1983, that 1s after this matter had been heard and judgment reserved, the judgment debtor ex- ecuted under seal a form of agreement expressed to be between himself and Nesseldorf Pty. Limited purporting to 19. release the company from its obligation to repay amounts of $48,519.77, $46,402.19 and $46,186.88 described as having been lent by the judgment debtor to the company to enable it to purchase three lots of Hoffman-Laroche shares (these being the amounts hereinbefore referred to) in consideration of the company making the shares so purchased available as security for moneys borrowed by the judgment debtor -from the Creditanstalt Bankverein in Vienna. This circumstance was brought to the Court's attention when the matter was listed for further hearing on 9 August 1983. It is clear that the two-companies, Nesseldorf Pty. Limited and Sharsie Pty. Limited are used by the judgment debtor as repositories of moneys coming to his hands either in the form of cash or cheques in connection with the business activities in which he is engaged as a consultant on legal, taxation and financial matters and by way of royalties on books of which he is the author. Indeed, the judgment debtor makes no secret that those companies and others are used by him as bankers in order to render ineffective any action taken by the applicant under section 218 of the Income Tax Assessment Act 1936 or otherwise to recover the amounts of income tax due and payable pursuant to the assessments and amended assessments to which reference has been made. It is also clear that moneys are periodically remitted overseas and that the judgment debtor intends to 20. continue to do so. The material before me establishes, and I do not understand it to be disputed, that belween June 1980 and June 1983 moneys remitted to Vienna by or on behalf of the judgment debtor totalled in excess of $650,000. That figure may well: be conservative. In the proceedings before McGregor J. the judgment debtor gave evidence that in the financial years 1980-81 and 1981-82 he sent overseas whatever remained after meeting from the moneys he received expenditure for living and office expenses. The applicant seeks an order under section 50 of the Bankruptcy Act 1966 on the ground that, unless such an order is made, the judgment debtor will continue to remit moneys out of Australia and otherwise dispose of his assets so that they will not be available for the benefit of creditors in the event of a sequestration order being made on the petition presently pending in this Court. It was conceded by the judgment debtor that "at first inspection you could not get a stronger case for a section 50 order than this one. It is almost a text book example of the sort of situation that section 50 was aimed at - somebody who not only disputes the debt but keeps sending money out of the country quite openly year in and year out, sometimes himself, sometimes through his companies; writing books about it to say it is a perfectly proper thing to do and that he intends to go on doing it. You cannot imagine a better case prima facie for a section 50 order." Notwith- 21. a ay standing this concession, he opposed the making of the order on a number of grounds in addition to the ground that section 50 was invalid, a matter with which I have already dealt. First he submitted that the evidence does not establish that an order under section 50 is "necessary in the interests of the creditors". In support of this ground it was argued that the Deputy Commissioner of Taxation has adequate powers to obtain payment of any debt found to be due under the Income Tax Assessment Act 1936. In particular reference was made to sections 177, 201 and 218 of that Act. Section 177 provides that the production of a notice of assessment is to be conclusive evidence of the due making of the assessment and (except in proceedings on appeal against the assessment) that the amount and all the particulars of the assessment are correct. Section 201 provides that the fact that an appeal or reference is pending does not in the meantime interfere with or affect the assess-~- ment the subject of the appeal or reference and income tax may be recovered on the assessment as if no appeal or reference were pending. Section 218 may shortly be described as enabling the Commissioner of Taxation to collect tax from a person owing money to the taxpayer. Reference was also made to the general power of a judgment creditor to levy : execution on the judgment, to obtain a charging order over such assets as shares in a company and to have a judgment debtor examined as to his assets. Finally 1t was said that a "Mareva'"' injunction could be obtained to prevent moneys being taken out of the country. 22. a The applicant is, no doubt, in a stronger position than an ordinary creditor because of the special rights and powers conferred by the Income Tax Assessment Act 1936. However, the existence of those powers or, indeed, of other powers available to creditors generally cannot be decisive of the issue before me. They may be a factor to be taken into account but in the final analysis the question is whether, on the whole of the material, it has been shown to be necessary in the interests of the ereditors of the judgment debtor that an order under section 50 be made. The judgment debtor asserts that he has no ereditors other than the applicant but it is amere assertion - there is no evidence before me to that effect. If, having regard to the activities in which the judgment debtor is engaged, it is correct that he has no other creditors it is because those creditors are being paid as their debts fall due in priority to the debt of the applicant, a debt which has been due and payable for some considerable time. No arrangements have been made by the judgment debtor to pay the debt whether by instalments or otherwise and he has not secured the debt to the applicant's satisfaction. His whole purpose seems to be to delay payment for as long as possible and so to conduct his affairs as to ensure that, in the event of a sequestration order being made against him, no moneys will be available from which the debt may be satisfied. On the material before me I am satisfied that 23. it is necessary in the interests of the creditors that an order under section 50 be made. The judgment debtor also opposed the making of the order sought on the ground that section 50 does not authorise an order in general terms that the Official Trustee take control of the property of the debtor: what it author- ises, so it was said, is an order directing the trustee to take control of a specific piece of property which must be identified in the order. Reference was made to sub-rule 17(1) of the Bankruptcy Rules which requires an affidavit in support of an application under section 50 to state such particulars of the property of the debtor, its location and its value as are known to the applicant. It was also said in support of this submission that to construe section 50 as extending to the whole of a debtor's property would have the consequence that the debtor would be precluded from retaining any income he earned, this being contrary to the position that obtains once a sequestration order is made in which case the bankrupt may retain any income earned subject to a special order being made under section 131 of the Bankruptcy Act 1966. . In my opinion no sufficient justification has been shown to warrant the general language of section 50 being read down so as to authorise an order only in respect of specific property identified in the order. The section, in my view, clearly authorises an order directing the trustee to take control of the whole of the property of the debtor. 24. It was also submitted by the judgment debtor that the Court has a discrelion whether to make an order under section 50 and in the circumstances of this case it should exercise its discretion by declining to make an order. Two reasons were advanced in support of the proposi- tion that this is not an appropriate case for the making of an order under section 50. First, it was said that the applicant's claim to be owed money is still the subject of a serious and bona fide dispute which has not yet been decided by the appropriate tribunal. Secondly, it was said that the validity of the bankruptcy notice on which the petition for sequestration is based is also the subject of proceedings pending in the High Court. In the particular circumstances of this case and with due regard to the nature of the order which section 50 authorises - an order designed to reduce the risk that such property as the debtor now possesses or which comes into his hands during the currency of the order is transferred out of Australia or otherwise disposed of - I am not persuaded that I should exercise my discretion in the judgment debtor's favour. Finally, the judgment debtor submitted that the Court should, 1n licu of making an order under section 50, accept an undertaking from him that would operate until the final determination of the creditor's petition pending against him. The terms of the undertaking proposed need 25. o not be set out. Suffice it to say that the undertaking is designed to place restrictions upon the transfer of money, assets or property out of Australia. The undertaking was not acceptable to the applicant. Undertakings to similar effect though in somewhat different form were proffered to this Court in the proceedings before Lockhart J. to set aside the bankruptcy notice dated 13 August 1982 and to the High Court in the proceedings before Mason J. for the removal ef the stay of proceedings in the appeal to that Court from the New South Wales Court of Appeal. In both cases the undertaking was not accepted. I, also, am not prepared to accept the judgment debtor's undertaking in lieu of making an appropriate order. For the reasons set out above I am of the opinion that an order under section 50 of the Bankruptcy Act 1966 should be made directing the Official Trustee to take concrol of the property of the judgment debtor. I so order. In reliance upon the power conferred by section 50 to make such orders in relation to the judgment debtor's property as the Court considers just and the general powers conferred by the Court by section 30 I make the ancillary orders set out below. However, before setting out the text of those orders I should mention that IT have made no refer- ence in the orders to a company known as Creasus Pty. Limited because I am not satisfied on the material placed before me that that company is one of those used by the judgment 26. fad debtor as a repository of moneys coming to his hands. This is one of a number of matters that will require investigation by the Official Trustee in carrying out the task of taking control of the judgment debtor's property. In relation to such matters it may be necessary for further applications to be made to the Court. The ancillary orders I make are as follows:- (a) (b) (c) That the Official Trustee in Bankruptcy open an account in the joint names of the judgment debtor and the Official Trustee with a trading bank within the city of Sydney and arrange with the said bank that moneys may be withdrawn from the said account only upon the authority of the Official Trustee in Bankruptcy or a nominated officer of such Official Trustee. That the Official Trustee in Bankruptcy furnish to the judgment debtor and to the applicant within 24 hours of the account being opened details of the said account. That the judgment debtor deposit with the said bank for the credit of the said account all moneys, cheques, negotiable instruments and other documents and instruments representing money received by the judgment debtor on or after the date of this order in respect of advice given or services performed by the judgment debtor (whether before or after the date of this order) in or in connection with his activities as a consultant on legal, taxation or financial matters or in respect of any other business activities carricd on by him (whether before or after the date of this order) or by 27. (d) (e) (£) (g) way of advances or royalties in respect of books written or to be written by the judgment debtor. That the judgment debtor take all necessary steps to ensure that all moneys, cheques, negotiable instruments and other documents and instruments representing money received by any company on or after the date of this order in respect of advice given or services performed by the judgment debtor (whether before or after the date of this order) in or in connection with his activities as a consultant on legal, taxation or financial matters or in respect of any other business activities carried on by him (whether before or after the date of this order) or by way of advances or royalties in respect of books written or to be written by the judgment debtor are deposited with the said bank for the credit of the said account. That the judgment debtor keep adequate records of all moneys, cheques, negotiable instruments and other documents and instruments representing money to which the preceding orders relate and deliver such records to the Official Trustee in Bankruptcy whenever requested to do so by the said Official Trustee. That the Official Trustee in Bankruptcy be authorised to make payment out of the said account of such business and x~easonable living expenses of the judgment debtor as the said Official Trustee shall approve. That the applicant be restrained until further order from issuing any notice in writing pursuant to section 218 of the Income Tax Assessment Act 1936 directed to the said bank in relation to the said account. 28. coy (h) That the judgment debtor before 4.00 p.m. on 22 August 1983 deliver to the Ufficzal I'rustee in Bankruptcy at St. James Centre, 111 Elizabeth Street, Sydney - (i) all the books, documents, papers and writings in his possession or power relating to his trade dealings, property or affairs; (ii) all the books, documents, papers and writings in his possession or power relating to the trade dealings, property or affairs of Nesseldorf Pty. Limited, Sharsie Pty. Limited, Metropolitan Mortgage Investment Corporation Pty. Limited, Oeax 3 Pty. Limited, Nadove Pty. Limited, Peter Clyne International Pty. Limited and any other company of which the judgment debtor is a director or in which he owns beneficially any share; and (iii) all share certificates held by him in Nesseldorf Pty. Limited, Sharsie Pty. Limited, Metropolitan Mortgage Investment Corporation Pty. Limited, Oeax 3 Pty. Limited, Nadove Pty. Limited, Peter Clyne International Pty. Limited and any other company in which he owns beneficially any share. (i) That the judgment debtor be restrained, without the prior approval of the Court, from paying, lending or depositing any money with, or transferring or delivering any property to, a person who, or a company which, is an "associate" within the meaning of that expression as defined in sub-section 82KH(1) of the Income Tax Assessment Act 1936 of the judgment debtor or which 29. as 9 (3) (k) (1) would be an "associate" as so defined of the judgment debtor it the judgment debtor were a taxpayer within the meaning of that expression as used in the said sub-section. That the judgment debtor be restrained, without the prior approval of the Court, from remitting, transferring, sending or taking moneys or other property out of Australia provided that this order shall not operate to restrain the judgment debtor in the event of his travelling overseas from taking with him such amowt by way of reasonable travelling expenses as the Official Trustee in Bankruptcy shall approve. That the judgment debtor take all necessary steps to ensure that, without the prior approval of the Court, no moneys received by any company prior to the date of this order in respect of advice given or services per- formed by the judgment debtor in or in connection with his activities as a consultant on legal, taxation or financial matters or in respect of any other business activities carried on by him or by way of advances or royalties in respect of books written or to be written by the judgment debtor are remitted, transferred, sent or taken out of Australia. That the judgment debtor take all necessary steps to ensure that the deec of agreement expressed to be made the eighth day of August 1983 between the judgment debtor and Nesseldorf Pty. Limited is not executed by or on behalf of the said company. 30. Cs bey (m) That the judgment debtor be restrained without the prior approval of the Court from releasing any person or company from an indebtedness of that person or company to the judgment debtor. (nm) That the parties have liberty to apply. (o) That the judgment debtor pay the applicant's costs of and incidental to the application. The judgment debtor requested, in the event that the Court made an order under section 50 and ancillary orders of the kind referred to above, that the Court grant a stay of proceedings or suspend the operation of the orders for a period of 21 days. Having regard to the fact that the orders I have made are designed to protect and preserve the property of the judgment debtor so that it may be appropriately dealt with according to law in the event of a sequestration order being made, I refuse the judgment debtor's request. I certify that this and the 30 preceding pages are a true copy of the Reasons For Judgment heréin of the Honourable Mr. Justice Neaves. O @ sa © Associate Dated. 17 August, 1983 31.