FEDERAL COURT OF AUSTRALIA Deputy Commissioner of Taxation v Meletsis [2015] FCA 364 Citation: Deputy Commissioner of Taxation v Meletsis [2015] FCA 364 Parties: DEPUTY COMMISSIONER OF TAXATION v IRENE MELETSIS File number(s): VID 94 of 2015 Judge(s): DAVIES J Date of judgment: 21 April 2015 Catchwords: BANKRUPTCY – Application for order directing registered trustees to take control of the debtor's property – purpose and effect of direction – where debtor has failed to comply with bankruptcy notice – where debtor has transferred property to connected entities – where concurrent proceeding before Administrative Appeals Tribunal proceeding – whether in the interests of creditors to make direction to preserve and protect property in debtor's name – whether direction would interfere with debtor's prosecution of proceeding in Administrative Appeals Tribunal – whether application should not be granted due to delay – whether undertaking by debtor should be accepted in lieu of orders sought Legislation: Bankruptcy Act 1966 (Cth) s 50 Taxation Administration Act 1953 (Cth) s 14ZZM Cases cited: Deputy Commissioner of Taxation v Clyne (1983) 50 ALR 118 Date of hearing: 20 April 2015 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 17 Counsel for the Applicant: Mr S Rosewarne Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondent: Ms C Gobbo Solicitor for the Respondent: Halperin & Co Pty Ltd IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 94 of 2015 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant AND: IRENE MELETSIS Respondent JUDGE: DAVIES J DATE OF ORDER: 21 APRIL 2015 WHERE MADE: MELBOURNE OTHER MATTERS: For the avoidance of doubt, the reference to the property of the respondent in order 1 and order 2 does not include the respondent's right to proceed with and prosecute Administrative Appeals Tribunal proceeding [confidential number of proceeding] and the respondent remains entitled to exercise and prosecute such rights for herself pending further order THE COURT ORDERS THAT: 1. Pursuant to s 50 of the Bankruptcy Act 1966 (Cth), Andrew Reginald Yeo and Gess Michael Rambaldi take control of the property of the respondent, Irene Meletsis, until a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) is made or until the disposition otherwise of the creditor's petition dated 5 March 2015. 2. The respondent before 10am on 27 April 2015 take all necessary and available steps (including the granting of any necessary permissions) to deliver to Andrew Reginald Yeo and Gess Michael Rambaldi at Level 19, 15 William Street, Melbourne, Victoria, 3000 all books, documents, papers and writings in her possession or power relating to her property and financial affairs. 3. The respondent be restrained either by herself or her servants or agents, without prior approval of the Court, from lending or depositing any of her monies with, or transferring or delivering any of her property or equitable interest to, any person, company or entity. 4. Without limitation of order 3, the respondent be restrained either by herself or her servants or agents from selling, mortgaging or otherwise dealing with or disposing of or permitting to be sold, charged, mortgaged or otherwise dealt with or disposed of, all or any of her assets including, but not limited to, the property at Unit 1, 174 – 178 George Street, Fitzroy, Victoria, 3065 being the land in certificate of title volume 09387 folio 779. 5. Orders 1, 3 and 4 shall not prevent the respondent from paying her reasonable living expenses and her reasonable legal expenses in connection with Administrative Appeals Tribunal proceeding [confidential number of proceeding] and this proceeding. 6. The parties have liberty to apply. 7. The respondent pay the applicant's costs of this application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 94 of 2015 BETWEEN: DEPUTY COMMISSIONER OF TAXATION Applicant AND: IRENE MELETSIS Respondent JUDGE: DAVIES J DATE: 21 APRIL 2015 PLACE: MELBOURNE REASONS FOR JUDGMENT 1 The Deputy Commissioner of Taxation ("Deputy Commissioner") has applied for an order under s 50 of the Bankruptcy Act 1966 (Cth) directing Mr Andrew Reginald Yeo and Mr Gess Michael Rambaldi, registered trustees, to take control of the property of the respondent ("Ms Meletsis"). Section 50 of the Bankruptcy Act relevantly provides: (1) At any time after a bankruptcy notice is issued, or a creditor's petition is presented, in relation to a debtor, but before the debtor becomes a bankrupt, the Court may: (a) direct the Official Trustee or a specified registered trustee to take control of the debtor's property; and (b) make any other orders in relation to the property. (1A) The Court may give a direction or make an order only if: (a) a creditor has applied for the Court to make a direction; and (b) the Court is satisfied that it is in the interests of the creditors to do so; and (c) the debtor has not complied with the bankruptcy notice. (1B) If the Court directs a trustee to take control of the debtor's property, the Court must specify when the control is to end. (2) Without limiting the generality of subsection (1), the Court may, at any time after giving a direction under subsection (1), summon the debtor, or an examinable person in relation to the debtor, for examination under this section in relation to the debtor. 2 A direction given under s 50 of the Bankruptcy Act is given in aid of the creditors of a debtor who has already committed an act of bankruptcy and has a creditor's petition pending against him or her. In Deputy Commissioner of Taxation v Clyne (1983) 50 ALR 118, 123, Neaves J stated: [Section 50] 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 in s 50(2) with their emphasis on obtaining information concerning the debtor or his trade dealings, property or affairs. As the section makes clear in its terms, the purpose and effect of a direction under s 50 is the protection of the interests of creditors of the debtor. 3 The Deputy Commissioner has presented a creditor's petition against Ms Meletsis which is listed for hearing on 28 April 2015. The petition was presented on 5 March 2015 but only recently served on 17 April 2015. The act of bankruptcy relied on was the failure of Ms Meletsis to comply on or before 27 February 2015 with a bankruptcy notice served on her in accordance with orders for substituted service made on 6 January 2015. The bankruptcy notice was founded on a default judgment that the Deputy Commissioner obtained against Ms Meletsis in the Supreme Court of Victoria in the amount of $2,862,137.58 in respect of unpaid income tax, general interest charge and costs. The Deputy Commissioner has supported his application under s 50 of the Bankruptcy Act with an affidavit sworn by Aris Zafiriou. Mr Zafiriou deposed that since the commencement of the debt recovery proceedings by the Deputy Commissioner against Ms Meletsis in February 2013, Ms Meletsis has disposed of three of the four properties that she owns. 4 On 17 December 2013, the property at 166 Napier Street, Fitzroy was transferred from Ms Meletsis to Odel Investments Pty Ltd for consideration expressed to be $650,000. The ASIC company database records that Odel Investments was incorporated on 13 November 2013 and that the sole director and shareholder is Mary Karas who is the sister of Ms Meletsis' husband, Tom Karas. 5 On 25 February 2014, the property at Unit 4, 174-178 George Street, Fitzroy was also transferred from Ms Meletsis to Odel Investments for consideration expressed to be $592,000. 6 On 11 August 2014, the property at 56 Nicholson Street, Fitzroy was transferred from Ms Meletsis to a company called CSC1957 Investments Pty Ltd for consideration expressed to be $1,160,000. The ASIC company database records that CSC1957 Investments was incorporated on 25 June 2014 and that the sole director and shareholder is Craig Charter. The Deputy Commissioner is unaware of the connection between Ms Meletsis and Mr Charter but has noted that in September 2013, a company called Performance Health (Aust) Pty Ltd placed caveats over each of the properties owned by Ms Meletsis. The sole director and shareholder of Performance Health is a Mr Shane Charter. The historical title statements for each of Ms Meletsis' properties also record that caveats were lodged by State Securities Pty Ltd, the sole director, secretary and shareholder of which is Nick Meletsis, who is the brother of Ms Meletsis. 7 The Deputy Commissioner is aware that Ms Meletsis remains the registered proprietor of Unit 1, 174-178 George Street, Fitzroy. Apart from that property, the Deputy Commissioner has ascertained that Ms Meletsis also holds shares in two companies, ACN 079 829 495 Pty Ltd and State Credit Corporation Pty Ltd, and that Ms Meletsis is currently a director and secretary of ACN 079 829 495 Pty Ltd, State Credit Corporation Pty Ltd, Bourke Property Group Pty Ltd, Capital One Securities Pty Ltd and Mint Jelly Pty Ltd. 8 The Deputy Commissioner submits that the history of asset transfers makes it appropriate and in the interests of the creditors of Ms Meletsis that steps be taken to preserve and protect the property which remains in her name, pending the resolution of the creditor's petition. Additional matters said to be of relevance to the protection of assets are the significant taxation debts of her husband, Mr Karas, and the fact that the property transfers have been made to companies that have, or appear to have, a connection with Ms Meletsis or her husband. 9 Ms Meletsis opposed the application on a number of bases. It was contended on Ms Meletsis' behalf that the orders sought are not necessary to preserve and protect her property or for the purposes of carrying out or giving effect to the Bankruptcy Act. It was argued that the property transfers themselves do not justify the appointment of an interim trustee to control her property, especially as Ms Meletsis is contesting her substantive liability to pay the tax as assessed on which the Deputy Commissioner obtained judgment against her. Counsel for Ms Meletsis pointed to the fact that Ms Meletsis lodged an objection against the assessments before the Deputy Commissioner filed his writ in the Supreme Court seeking recovery of the tax as assessed and that she is currently seeking a review of the Commissioner's decision to disallow in part her objection in a proceeding under Part IVC of the Taxation Administration Act 1953 (Cth) in the Administrative Appeals Tribunal ("the AAT"). That proceeding was commenced in October 2013 and is currently part heard, with three days of hearing in February 2015 and the hearing to resume on 4 May 2015 for another three days. Ms Meletsis has offered an undertaking to the Court not to dispose of her assets, save for the purpose of paying legal expenses associated with the AAT proceeding and the bankruptcy proceedings and for reasonable living expenses, provided that the Deputy Commissioner gives the usual undertaking as to damages. 10 It was also contended on behalf of Ms Meletsis that there is a substantial risk that an interim trustee would interfere with Ms Meletsis' ability to prosecute the AAT proceeding. Concern was expressed that an order under s 50 may have the effect that the appeal rights constitute property under the terms of the order, or at least would be likely in a practical sense to interfere with Ms Meletsis' ability to prosecute the AAT proceedings. It was said, by way of example, that as the proposed orders require delivery up of all books and records, such books and records would include privileged documents relating to the litigation. 11 It was further submitted that the evidence demonstrated that Ms Meletsis has a strong case in the AAT which, if successful, would be likely to reduce, if not eliminate, the debt that is the basis for the creditor's petition. It was argued that the timing of the Deputy Commissioner's application was "curious" given the steps being undertaken in the AAT proceeding, the state of the evidence and Ms Meletsis' apparent likelihood of success. Mr Halperin, the solicitor for Ms Meletsis, swore an affidavit on her behalf in opposition to the application of the Deputy Commissioner in which he asserted, based on the information set out in his affidavit and the annexures to it, that he believed that the Deputy Commissioner was attempting to thwart Ms Meletsis' ability to prosecute her position at the resumed hearing in the AAT listed for 4 May 2015. 12 Finally, it was submitted that there has been an inordinate and unexplained delay by the Deputy Commissioner in bringing the application and, given the delay, it cannot be the case that the Deputy Commissioner perceives there to be a substantial and immediate risk to Ms Meletsis' assets. It was urged for Ms Meletsis that the Court should exercise a "high degree of caution" in relation to the making of the order sought, and ought to conclude that it is not warranted in the circumstances of the case. Further, it was argued that the Court should grant the minimum relief necessary to do justice as between the parties, which it was said, given the proposed undertaking, is no relief. 13 I am satisfied on the basis of the evidence before the Court that it is in the interests of the creditors for the Court to give a direction under s 50 appointing Mr Yeo and Mr Rambaldi to take control of Ms Meletsis' property. The governing factor is the interests of the creditors. It is uncontroversial that since the assessments were issued to Ms Meletsis, she has disposed of three of her four properties. Further, the evidence indicates that the properties were transferred to entities which have, or appear to have, some connection with Ms Meletsis. I accept the submission of the Deputy Commissioner that the circumstances of these transfers are matters that a trustee in bankruptcy may need to investigate. It was submitted for the Deputy Commissioner that the appointment of an interim trustee under s 50 would enable such investigations to commence sooner rather than later, having regard to the ability of the interim trustee to have the debtor, or other examinable persons, examined before sequestration. It may be that there will be no need to consider whether that should be invoked as the creditor's petition is due to be heard next week, but the existence of the power conferred under s 50 is an important aid to assisting the preservation and protection of creditors' interests and it is not for this Court to anticipate what may or may not occur at the hearing of the creditor's petition. 14 I do not infer anything adverse to the Deputy Commissioner from the timing of the making of the application. The law is clear that the fact that an appeal or review is pending does not, in the meantime, affect or interfere with the implementation of the taxation decision and the tax may be recovered on the assessment as if no appeal reference were pending: s 14ZZM of the Taxation Administration Act 1953 (Cth). 15 Further, I am not persuaded that I should refuse to make the orders sought because of the concern about the impact on Ms Meletsis' ability to prosecute her proceeding in the AAT. The proposed form of order is drafted to make it clear that the property over which the trustees are to take control does not include Ms Meletsis' right to proceed with and prosecute the AAT proceeding. Additionally, the proposed orders specifically permit Ms Meletsis to pay her reasonable living expenses and reasonable legal expenses in connection with the AAT proceeding. Insofar as there are practical concerns relating to the handing over of documents that may be subject to legal professional privilege, they are matters that can be dealt with if the need arises. 16 Finally, I am not persuaded that the proffered undertaking should be accepted in lieu of making the orders sought. The undertaking is not acceptable to the Deputy Commissioner and, as I am satisfied that it is in the interests of creditors for the orders sought to be made, I am not prepared to accept the undertaking in lieu of making the orders sought. 17 Accordingly, the application is granted and I will make the orders in the form that is sought. I certify that the preceding seventeen (17) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies . Associate: Dated: 21 April 2015