wee nso) suoenent to. L287 a savaveveesnel Qnasrccccese NOT FOR DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION BANKRUPTCY DISTRICT OF THE SOUTHERN ) ) ) ) No. QLD P.675 of 1987 ) ) ) DISTRICT OF THE STATE OF QUEENSLAND RE: JOHN WAYMOUTH AHERN Debtor EX PARTE: DEPUTY COMMISSIONER OF TAXATION Petitioning Creditor CORAM: WILCOX J PLACE: BRISBANE DATE: 29 JUNE 1987 MINUTES OF ORDER THE COURT ORDERS THAT: 1. A sequestration order be made against the estate of the debtor. 2. The costs of the petitioning creditor be taxed and paid according to the Act. 2. 3. A draft of this order be delivered to the Registrar within seven (7) days in accordance with Bankruptcy sub-r.124(2). NOTE: Settlement and entry of orders is dealt with in Bankruptcy Rule 124. vdoda de bow NOT FOR DISTRIBUTION IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No. OLD P.675 of 1987 BANKRUPTCY DISTRICT OF THE SOUTHERN DISTRICT OF THE STATE OF QUEENSLAND RE: JOHN WAYMOUTH AHERN Debtor EX PARTE: DEPUTY COMMISSIONER OF TAXATION Petitioning Creditor CORAM: WILCOX J PLACE: BRISBANE DATE: 29 JUNE 1987 EXTEMPORE REASONS FOR JUDGMENT ON APPLICATION FOR ADJOURNMENT " odiclga dl b. & I am of of the opinion that the application for an adjournment of the hearing should not be granted. The position, as appears from the evidence to which I have been taken, is that the solicitor for the debtor, Mr A B Carter, was informed on 1 April last by an officer of the Deputy Commissioner of Taxation of the possibility of bankruptcy proceedings being taken against the debtor. It appears, according to the allegation in the petition, that a 2. bankruptcy notice was served upon the debtor on 4 April 1987 requiring compliance on or before 27 April 1987. The petition was served on 14 May. There was apparently a delay of about 10 days in Mr Carter being instructed in the matter. But even if one counts from that time -- that is to say, 24 May -- a period of five weeks has elapsed. The petition was made returnable on Friday, 26 June; that is to say, last Friday. I should have thought that it would be obvious to the debtor and to those acting on his behalf that it would be essential by that date to have material which was persuasive that the rel 2 + vo Pr a cnere ought to be an adjournment. It is true that an attempt was made to have the matter listed for hearing before today; but that attempt was apparently not made until 17 June. Even if it had been possible to arrange an early directions hearing, prior to 26 June, it seems inevitable that after any directions date there would not have been sufficient time for the evidence to be put in order between then and the return date of the petition, Had the Registrar, on 17 June, been able to arrange a prompt phd directions hearing -- for example, last Monday, 22 June the judge giving directions would have been confronted with the situation that he was being asked to make directions which would ensure that there would be an adjournment of the hearing. There would have only been two possible courses if Mr Ahern was to give evidence in support of the anplication for adjournment. One of these would have been to have taken his evidence orally; a course which, in my opinion, would have been highly inappropriate, involving, as it would, his 3. giving oral evidence of a multitude of transactions over—a= period of ten years. This would have been a very slow and inefficient way of putting his evidence before the Court. But even if a judge had been persuaded to adopt this course, it would have been most unlikely that this could have been arranged before the return date. The alternative would have been to direct that Mr Ahern's evidence be taken on affidavit, but, given its complexity, there would have been no chance of a satisfactory affidavit being filed before 26 June. In consequence, the result of the late application for directions was that the Court would have been forced into a situation of granting an adjournment despite the lack of proper material to ground that application. I deal with the matter on the same basis as I would have done had I been considering directions prior to a hearing date. I do not think that the debtor should be prejudiced by the fact that a directions hearing could not be arranged last week. But it seems to me that the cause of the debtor's A he. w problem is the lack of action between 24 May and 17 June. 3If 7% an it had been desired to seek a lengthy adjournment of the petition, promptly upon service and instructions being given to the debtor's solicitors, steps should have been taken to prepare a substantive affidavit on behalf of the debtor. If, for some reason, it was thought inappropriate immediately to prepare tnat affidavit without directions, the matter could have been listed for directions very shortly after Mr Carter was instructed on 24 May. 4. It would then have been possible for the judge dealing with the matter to have made appropriate directions to ensure a proper hearing of the adjournment application not later than the return date of the petition. The debtor and his advisers appear to have allowed the critical weeks to slip by. I do not think that the Court should simply bow to this by granting an adjournment today, when there is no material to justify that course being taken. Consequentiy, I refuse the application for an adjournment. There are a number of grounds of opposition advanced, and I will consider these after the luncheon adjournment. I will adjourn now until 2.15 p.m. EXTEMPORE REASONS FOR JUDGMENT ON HEARING OF CREDITOR''S PETITION This is the hearing of a creditor's petition filed by the Deputy Commissioner of Taxation against John Waymouth Ahern. The petition claims that the debtor is indebted tothe Deputy Commissioner in the sum of $4,148,374.80, being thes amount owing under a final judgment obtained by him against the debtor in the Supreme Court of Queensland on 8 May 1986, being for income tax, provisional tax and additional tax. The act of bankruptcy relied upon is the failure by Mr Ahern to comply with the requirements of a bankruptcy notice served upon him on 4 April 1987. A notice of intention to oppose the petition has been filed by the debtor. Four grounds are relied upon, as follows: 5. "1. The Petitioner failed to serve on the -- Applicant a valid Bankruptcy Notice. 2. The Applicant has not committed the act of bankruptcy referred to in paragraph 4 of the Petition or at all. 3. The judgment debt referred to in the Bankruptcy Notice is in respect of Notices of Assessment issued by the Petitioner, relating to appeals from the Petitioner's decision not to allow the objections in respect thereof, which appeals have not yet been determined by the Supreme Court of Queensland. 4. The Applicant has applied to the Federal Court of Queensland pursuant to the provisions of the Administrative Decisions (Judicial Review) Act 1977 for review of decisions of the Petitioner relating to these proceedings." The first two grounds may be considered together. The point which was taken on behalf of Mr Ahern is that the bankruptcy notice was served upon him whilst he was held as a prisoner at the Palen Creek prison farm. This occurred following his conviction on 19 December last on a charge of conspiracy to defraud the Commonwealth. Mr Ahern is still_in prison. The argument was that, by reason of his imprisonment, = he was unable personally to go to the office of the creditér and to attempt to compound his debt. It was said that the bankruptcy notice was therefore invalid, with the result that no act of bankruptcy was committed by Mr Ahern's failure either to pay the debt or to secure or compound the debt to the satisfaction of the creditor. The form of bankruptcy notice referred to in s.40(1)(g) of the Bankruptcy Act 1966 is a prescribed form. It is a requirement of the prescribed form that the debtor be 6. informed of his entitlement to secure or compound the debt. A bankruptcy notice which omitted any such reference would clearly be an invalid notice, non-compliance with which would not give rise to an act of bankruptcy. The consequence of the argument is that, in the case of a person who is precluded from making personal contact with his creditor, para.(g) would be unavailable as a source of an act of bankruptcy. The argument would have to extend beyond prisoners to all debtors who for other reasons -- such as illness or distance -~ are unable to make nersonal contact with their creditor. Counsel for the debtor has informed me that there is no authority on the matter. It seems to me that the submission is inconsistent with principle and must be rejected. The purpose of para.(g) is to provide a method of determining whether a debtor is able to pay his debts as they fall due. The legislature has taken into account the possibility of a composition, but this does not mean that the debtor necessarily has to have the opportunity personally. to approach the creditor. An approach might be made through=an agent. dod hi ' The fourth ground taken in the notice of intention to oppose may also be disposed of shortly. It refers to the fact that, on 17 June 1987, only nine days before the return date of the petition, an Application was filed in this Court under the Administrative Decisions (Judicial Review) Act 1977 seeking review of the decision of the Deputy Commissioner to institute the bankruptcy proceedings, and in particular to issue and serve the bankkruptcy notice. I think that the pendency of those proceedings does not provide a reason for exercising the Court's discretion under s.52(2)(b) of the Act adversely to the petitioning creditor. It is well settled that the effect of the Income Tax Assessment Act 1936 is to give to the Deputy Commissioner of Taxation the right to take proceedings for recovery of unpaid tax notwithstanding the pendency of other proceedings. This applies even when proceedings challenging the correctness of the assessment are awaiting hearing. It is sufficient to refer to Clyne v The Deputy Commissioner of Taxation (1983) 57 ALJR 673. The principle adopted by the High Court in that case must apply a fortiori to proceedings which are merely collateral to the issue whether or not the assessments were properly made. The third ground of opposition is the one which has occupied the greatest attention at this hearing. On behalf of the debtor, the submission was put that, so far as the . evidence discloses, the Deputy Commissioner of Taxation is the = = sole creditor of the debtor. Moreover, it was said that there is no evidence as to the existence of any assets of the debtor. It was put by counsel that the effect of a sequestration order will be that the debtor will be unable to prosecute appeals presently pending in the Supreme Court of Queensland against the decision of the Deputy Commissioner to disallow the objections of the debtor to the ten notices of assessment upon which the judgment debt was based. It was said that it would be unlikely that a trustee would be 8. prepared to prosecute the appeals, especially if the only creditor is the Deputy Commissioner of Taxation, and that, 'in the nature of things, it is unlikely that the Deputy Commissioner would be prepared to fund appeals to which he was the opposing party. Complaint was made that there has been delay between the obtaining of judgment and the commencement of the bankruptcy proceedings; during which time costs in relation to the tax appeals have been incurred. Further, attention was directed to the fact that there are pending in the Supreme Court proceedings, in which the Commissioner is the plaintiff and the debtor is the defendant, in which complaint is made pursuant to the Property Law Act, (Qld), about certain conveyances said to have been made in fraud of the creditors. It was said that a sequestration order would frustrate the defence of these proceedings. As I understood the argument put by counsel, it was suggested that the frustration of the tax appeals and the Property Law Act application was not merely an unintended consequence of any sequestration order, but was a reason why the bankruptcy proceedings had belatedly been taken. I was concerned about these submissions, but further evidence emerged which persuades me that they are not, in fact, well founded. In so far as delay is concerned, it is true that a period of about 11 months elapsed between the date of judgment and the date of issue of the bankruptcy notice. It is also 9. true that, during this time, preliminary steps were taken in the Supreme Court of Queensland in relation to the tax ~~ appeals. No doubt, not insubstantial legal costs were incurred. However, it appears that the debtor's criminal trial occupied a period of about three months; from some time in September 1986 until 19 December. I think it is correct, as counsel for the Deputy Commissioner submitted, that it would have been burdensome to the debtor for the Deputy Commissioner to have launched upon bankruptcy proceedings during the course of that trial. Indeed, to have taken that course may have been to expose the Deputy Commissioner to justifiable criticism that his action had prejudiced the criminal trial. I think that the same goes for the period of four months which elapsed between the date of judgment and the time that the trial started. I bear in mind that the various disputes between the Deputy Commissioner and the debtor have attracted considerable media attention. I have no doubt that if bankruptcy proceedings had been commenced at that tim there would have been publicity; which publicity may weld have caused justifiable concern about prejudice to the criminal proceedings. The period which elapse? after the completion of the trial, particularly bearing in mind the Christmas break, does not appear to me to be so great as to support the view that the debtor was allowed to incur costs in the belief that there 10. would be no bankruptcy proceedings; only to find that a. bankruptcy notice, and subsequently a petition, was issued against him. I see no reason to attribute to the Deputy Commissioner any improper motive in taking these proceedings. I say that for two reasons. Firstly, the evidence which was given by Mr A B Carter, the solicitor for Mr Ahern, establishes, without any doubt, that substantial funds are available to him from various proprietary companies. TI gather that he is not a director of any of these companies, two of which appear to be controlled by persons in the Channel Islands, and the other by one or more of his sons. However, the companies, and in particular Karpouzi Pty Limited, have apparently been willing to provide funds as required by Mr Ahern. I gather that Karpouzi is the trustee of a family trust, of whom Mr Ahern's wife is a beneficiary. As Mr Carter put it, she only has to ask her son when she needs money. It appears that this company has contributed something like half a million dollars towards legal expenses in recent times = tad presumably mostly in connection with the criminal trial. 3 There is in existence a Mareva injunction, in relation not only to Mr Ahern but also to Karpouzi, but there is excepted from the operation of this injunction legal expenses of both Mr Ahern and Karpouzi. It is apparently pursuant to this exception that these considerable legal expenses have been paid by Karpouzi. ll. Nonetheless, the company retains very considerable assets, both in Queensland and outside Australia. In a consequence, there is no reason to believe that the effect of a sequestration order would be that the necessary funds for prosecution of the tax appeals were lacking. It is true that the Official Receiver would have to determine his attitude towards continuation of the tax appeals. But this is not a case where he would be dependent upon the opposing party to fund those appeals, if he thinks that they are well based. As Mr Carter put it, if Mr Ahern was made bankrupt today, he thought that the companies would wish to carry on the appeals and would offer to fund them. Having regard to the fact that the funding of the appeals will come from assets which are subject to a Mareva injunction, I see no detriment in having an independent view taken about the prospects of the appeals before further substantial expense is incurred. The other aspect of the matter is that, contrary to the impression which might have been gained from the fact that there ts here no evidence of any pesonal assets of Mr Ahern, = it appears that he is in the fortunate position of being able to control considerable assets owned by the companies. It was said in an affidavit by Mr Carter that the basis of Mr Ahern's dispute about his taxation liability is that he has been assessed for income which was, in fact, earned by various companies. The identity of those companies has not been spelt out. Rut, having regard to the assets apparently controlled by Karpouzi, it may be that this is one of the companies about which Mr Carter was speaking. It is possible that Karpouzi's 12. assets have nothing to do with Mr Ahern, in the sense that they are not part of his divisible estate upon bankruptcy; ~ but the contrary is also possible, and it seems to me that there is a public interest in the administration as soon as possible of Mr Ahern's estate by a person in the position of an independent trustee. For all of these reasons, I am of the view that the Court should exercise the discretion conferred by s.52(2) of the Act in favour of the petitioning creditor. I reject each of the grounds of opposition. The_ appropriate formal evidence as to the continuance of the debt having been filed and read, I propose to pronounce a sequestration order. I am satisfied of each of the matters of which s.52 of the Bankruptcy Act requires proof. I make a sequestration order against the estate of the debtor. I order that the costs of the petitioning creditor be taxed and paid in accordance with the Act. I direct that the petitioning credit6r bring a draft of this order, pursuant to r.124, within-seven days. edhe di I certify that this and the eleven (11) preceding pages are a true copy of the Reasons for Judgment of his Honour Mr Justice Wilcox. Associate: Cm Las wo ea RM. Croicwc ke Date: 6 July 1987 13. Counsel for the Debtor: Mr I Hanger QC with : Mr I Diehm _-- Solicitors for the Debtor: Carter Capner & Co Counsel for the Petitioning Creditor: Mr L Harrison OC with Mrs P Wolfe Solicitors for the Petitioning Creditor: Australian Government Solicitor Date(s) of hearing: 29 June 1987 gs de dis