FEDERAL COURT OF AUSTRALIA Bankruptcy - bankruptcy notice based on judgment - whether debtor has committed an act of bankruptcy in the light of restraining order issued under s 43 of the Confiscation of Proceeds of Crime Act 1989 (NSW). Confiscation of Proceeds of Crime Act 1989 (NSW) - s 43 Boscolo v Botany Council, Jenkinson, O'Loughlin, Sackville JJ, 16 October 1996, unreported - cons. Re Solomon; Ex parte Reid (1986) 10 FCR 423 - dist. DEPUTY COMMISSIONER OF TAXATION v LOUIS BAYEH (IN THE MATTER OF LOUIS BAYEH) NG 7974 of 1997 JUDGE: BEAUMONT J. PLACE: SYDNEY DATE: 4 JUNE 1998 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 7974 of 1997 IN THE MATTER OF LOUIS BAYEH BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant AND: LOUIS BAYEH Respondent JUDGE: BEAUMONT J. DATE OF ORDER: 4 JUNE 1998 WHERE MADE: SYDNEY ORDERS: That the preliminary question be answered in the affirmative as follows: "Q. Whether, in the light of the restraining order made under s 43 of the Confiscation of Proceeds of Crime Act 1989 (NSW) and notwithstanding that order, the debtor committed an act of bankruptcy by reason of his failure to comply with the requirements of the bankruptcy notice served on him on 30 June 1997?" "A. Yes." Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NG 7974 of 1997 IN THE MATTER OF LOUIS BAYEH BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant AND: LOUIS BAYEH Respondent JUDGE: BEAUMONT J. DATE: 4 JUNE 1998 PLACE: SYDNEY REASONS FOR JUDGMENT BEAUMONT J: Before the Court is a preliminary question, arising before the final hearing of a creditors petition in bankruptcy, as follows: Whether, in the light of the restraining order made under s 43 of the Confiscation of Proceeds of Crime Act 1989 (NSW) and notwithstanding that order, the debtor committed an act of bankruptcy by reason of his failure to comply with the requirements of the bankruptcy notice served on him on 30 June 1997. The bankruptcy notice, which was issued on 21 February 1997, claimed that the debtor owed the Deputy Commissioner of Taxation the sum of $884,061.83, being the balance owing under a judgment obtained by the Deputy Commissioner of Taxation in the sum of $868,753.87, together with interest. The bankruptcy notice required compliance within 21 days after service. At the time of service of the bankruptcy notice there were in force orders made by the Supreme Court of New South Wales pursuant to s 43 of the Confiscation of Proceeds of Crime Act 1989 (NSW) ("the Act"). Under that provision, application may be made to the Supreme Court for restraining orders in the circumstances there specified. By s 43(2)(c), it is provided that the Court may then by order direct that the property or such part of the property of the defendant, as is specified in the order, is not to be disposed of, or otherwise dealt with, by the defendant or by any other person, except in such manner and in such circumstances (if any) as are specified in the order. By s 43(2)(d) the Court may, if the Court considers that the circumstances so require, direct the Public Trustee to take control of the property, or such part of the property of the defendant as is specified in the order. By orders made on 10 October 1996, and in force at the time of service of the bankruptcy notice, the following orders were made: "1. All the property of the defendant not be disposed of or otherwise dealt with by the defendant or by any other person otherwise than in accordance with orders 2 3 4 or 5. 2. The defendant may expend from the property the subject of order 1 (a) the defendant's reasonable living expenses and the reasonable living expenses of his dependants; and (b) the defendant's reasonable expenses in defending a criminal charge. 3. The defendant (a) may forthwith take all reasonable steps to, and proceed to, sell his interests in real property situated outside Australia in accordance with clauses (c) to (f); (b) may, after 5 days notice to the Plaintiff, dispose of any property, or interest in real property in Australia in accordance with clauses (c) to (f); (b1) may forthwith dispose of his interest in taxi licences in Australia in accordance with clauses (c) to (f); (c) for an amount not less than the reasonable market rate agreed to between the defendant, the registered owner if different to the defendant, and the Plaintiff; (d) any charge over the property may be paid out of the proceeds of sale; (e) the reasonable costs of the sale may be paid out of the proceeds of the sale and may include: (i) disbursements and solicitor's profit costs at a rate not exceeding scale; (ii) real estate agent's and auctioneer's commission at a rate not exceeding scale; (iii) adjustments for rates, taxes and other statutory charges; (f) the balance of the proceeds of the sale, after disbursement of the amounts in clauses (c), (d) and (e) shall be deposited with the Public Trustee into account number (032 004) 000 813 with Westpac Banking Corporation on the day of the sale, or if settlement is after 3.15 p.m., on the first working day after settlement unless otherwise agreed in writing between the plaintiff and the defendant. 4. The defendant may, after receipt of the written consent of the plaintiff to terms, mortgage his interest in real property. Funds advanced by the mortgagee shall only be used to pay amounts outstanding to the Australian Taxation Office and such other amounts which the plaintiff agrees in writing are reasonable expenses within the terms of order 2. The mortgagee shall not advance moneys in excess of the amount referred to in a written consent of the plaintiff. (Emphasis added). 5. These orders do not operate to prevent the mortgagee (or successor) from levying charges as provided in the mortgage and exercising the powers under the mortgage according to law. If the mortgagee exercises its powers according law to sell the mortgaged property, the mortgagee shall abide by the terms of clauses (d) to (f) of order 3 as if it were the defendant. 6. The Public Trustee take control of the property of the defendant. ... 9. Each party be at liberty to apply on two days notice." There is no suggestion that any of these orders were made beyond power or are otherwise liable to be set aside. They were clearly interlocutory orders, and by s 45(1)(a) of the Act, if the Supreme Court makes a restraining order, the Court may, at the time or at any later time, make any ancillary orders that the Court thinks appropriate and, without limiting the generality of this, the Court may make an order varying a restraining order in respect of the property to which it relates. But as has been said, the orders made on 10 October 1996 were in force at the time of service of the bankruptcy notice and the matter has been argued upon the footing that at the time that the bankruptcy notice required compliance, the provisions of the orders of the Supreme Court were in full force and effect. It is submitted on behalf of the Director of Public Prosecutions, who has been granted leave to be heard pursuant to O 77 r 9 of the Federal Court Rules, that the preliminary question should be answered in the negative. The Director of Public Prosecutions is the plaintiff in the proceedings in the Supreme Court in which the orders dated 10 October 1996 were made. The defendant in those proceedings was the debtor. Other persons were the subject of orders made in that proceeding but nothing turns on this for present purposes. The debtor also appears before the Court and supports the submission now advanced on behalf of the Director of Public Prosecutions. The course of authority in this Court in the area in which the present question arises has been described in the decision of the Full Federal Court in Boscolo v Botany Council, Jenkinson, O'Loughlin, Sackville JJ, 16 October 1996, unreported. The line of authority commences with Re Seers (1955) 17 ABC 11 and may be traced to Re Solomon; Ex parte Reid (1986) 10 FCR 423, and, more recently, to Penning v Steel Tube Supplies Pty Limited (1988) 18 FCR 568 and later still to Wiltshire-Smith v Mellor Olsson (1995) 57 FCR 572. These cases all support the proposition that there need not be an express order of a court staying execution on the particular judgment on which the creditor relies for the purpose of determining whether the relevant condition stipulated in s 40(1)(g) of the Bankruptcy Act 1966 has been satisfied. That condition, it will be recalled, is whether there has been non-compliance with the requirements of a bankruptcy notice in circumstances where the creditor has obtained against the debtor a final judgment or final order "being a judgment or order the execution of which has not been stayed." (Emphasis added). For present purposes I am, of course, bound by relevant decisions of the Full Court. In Boscolo v Botany Council it was decided by Jenkinson and O'Loughlin JJ (with possibly some reservations expressed by Sackville J), that the Court must embark upon a "factual inquiry to determine the practical effect of the order [to determine] whether in the eyes of ordinary fairness in business it will be said that the order has in a business sense prevented the debtor from paying" (per Jenkinson J at p 3). In my view, it cannot be said in any business sense that the effect of the restraining orders was to prevent the debtor from paying the Deputy Commissioner of Taxation for these reasons. First, the evidence before the Court as to the nature and value of the assets owned by the debtor consists of the following statements in the affidavit of Graham Rees sworn on 1 April 1998. Mr Rees is a solicitor employed in the Office of the Director of Public Prosecutions. In his affidavit Mr Rees says, inter alia: "9. The affidavit of C. R. Carter (Ex GR/1) indicates that at the date of the application for the restraining order Mr Bayeh's assets included the following: (a) Family home at 25 Hughes Street, Ermington; (b) a 1977 Mercedes Benz sedan Registration number AAK-49K; (c) Taxi plate T7007 and Taxi plate T7906, in Mr Bayeh's capacity as licensee. 10. Correspondence from Yvonne Swift and Burn, the solicitors then instructed to act for Mr Bayeh in the COPOC proceedings, to the DPP in January 1998 indicated that, according to their instructions, Mr Bayeh's remaining assets comprised: (a) Family home at 25 Hughes Avenue, Ermington valued at about $250,000.00 to $300,000.00; (b) Taxi cab, valued at about $275,000.00; and (c) Land in Lebanon valued at about $150,000." Secondly, in my view, cases such as Solomon, in which a general restraining order operated to prevent the debtor paying the creditor, should be distinguished from the present case. As has been seen, order 4 of the present restraining orders provided that the debtor may, after receipt of the written consent of the Director of Public Prosecutions to terms, mortgage his interest in real property and funds advanced by the mortgagee could be used to pay, inter alia, amounts outstanding to the Australian Taxation Office. It was further provided in order 4 that the mortgagee was not to advance moneys in excess of the amount referred to in any written consent given by the Director of Public Prosecutions. If this provision were viewed as a free-standing provision, it is true that a question would arise as to the need of the debtor to seek the written consent of the creditor to the terms of any mortgage. However, the terms of the order specifically contemplate that funds raised on the ground of a mortgage, would be applied to pay amounts outstanding to the Australian Taxation Office. In my opinion, as a matter of ordinary interpretation, order 4 should be read as subject to the usual implication that the consent of the Director of Public Prosecutions, for the purpose of a mortgage to pay amounts outstanding to the Australian Taxation Office, should not be unreasonably withheld. It would perhaps be reasonable for the Director of Public Prosecutions to have withheld consent if the terms of the mortgage proposed were unconscionable in some respect, or if the amount sought to be raised on the mortgage was seen to be excessive. But there was no such suggestion in the present case. Indeed there is no suggestion that the debtor ever sought the consent of the Director of Public Prosecutions to the grant of any mortgage for the purpose of paying the amounts owed to the Australian Taxation Office. In the absence of any attempt on the part of the debtor to take advantage of the benefit conferred upon him by the provisions of order 4, the operation of which was clearly earmarked to deal with the amount owed to the Deputy Commissioner of Taxation, it is not, in my view, open to the debtor to seek to rely upon the operation of the restraining order for present purposes. Moreover, I am not satisfied at the practical level that if the Director had been approached to give his consent, he would have refused to do so. Nor am I satisfied that, assuming that this consent had been given, the debtor would have been unable to raise moneys on a mortgage or mortgages which would have been sufficient to pay the amounts outstanding to the Australian Taxation Office. I should, for completeness, mention the provisions of order 6 of the orders made on 10 October 1996. It is there provided that the Public Trustee was to take control of the property of the defendant. This order was made pursuant to the provisions of s 43(2)(d) of the Act. The Supreme Court is there empowered to direct the Public Trustee to take control of the property of the defendant or such part of the property as is specified in the order. I would, therefore, interpret order 6 as such a direction, rather than an attempt by the court to vest any property or other proprietary right in the Public Trustee. Pursuant to the giving of such a direction, the Public Trustee would take control of the property of the defendant as an officer of the court and would do so subject to compliance with any directions that the Court may give in that behalf (see Deputy Commissioner of Taxation v Kunz (1992) 24 ATR 109 at 116-117). Two points may be made in this connection. First, the relevant power of the Court, in this context, is to give a direction to a person who, as I have said, should be regarded as an officer of the Court for this purpose. Secondly, when the orders made on 10 October 1996 are read as a whole, it is clear that the general language of order 6 must be read in accordance with the usual principles of interpretation and subject to the specific operation of the terms of order 4. In other words, for present purposes, I regard order 4 as an exception to the operation of order 6, so that in the case where the Director were to give his consent to a mortgage, the debtor (the defendant) was, notwithstanding the terms of order 6, entitled to mortgage his interest for the purpose of raising funds to pay the debt owed to the Deputy Commissioner of Taxation. To this extent, order 6 has, in my view, no relevant operation here and for this reason, cases such as Solomon should be distinguished from the present case. ORDERS It follows, in my view, that there being no other matter relied upon to suggest that the question I have set apart for determination should be answered in the negative, I order that the preliminary question be answered in the affirmative. I certify that this and the preceding six (6) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont Associate: Dated: 4 June 1998 Counsel for the Applicant: M A Wigney Solicitor for the Applicant: Australian Government Solicitor Counsel for NSW Director of Public Prosecutions: M Buscombe Solicitor for NSW Director of Public Prosecutions: Solicitor for Public Prosecutions Solicitor for the Respondent: Hovan & Co Counsel for Mrs Bayeh: M Carey Solicitor for Mrs Bayeh: Patrick Grimes Date of Hearing: 4 June 1998 Date of Judgment: 4 June 1998