Deputy Commissioner of Taxation v Cumins

Federal Court of Australia|2008-05-30|Before: Gilmour J

REASONS FOR JUDGMENT 1 The applicant, the Deputy Commissioner for Taxation, petitions for a sequestration order under s 43 of the Bankruptcy Act 1966 (Cth) ("the Act") in respect of the estate of the respondent, Mr Brian Cumins. The amended petition pleads that the respondent owes the applicant $38,032,100.01. The alleged act of bankruptcy relied upon is the failure, by the respondent, amongst other things, to comply, on or before 18 September 2006, with the requirements of a bankruptcy notice deemed served on him on 4 August 2006. The bankruptcy notice was issued on 17 March 2006.

BACKGROUND 2 The respondent, Mr Cumins, invested in excess of $5 million in what he described as "Infomercial Schemes" between 1996 and 1998. An "Infomercial", according to the respondent, is an advertising film which is generally shown on television and promotes a product in an informative and objective style. 3 On 23 October 2000, the applicant issued Notices of Amended Assessments to the respondent for the years ended 30 June as follows: Year Ended Amount 1996 $ 3,344,884.24 1997 $ 2,836,956.98 1998 $12,954,263.05 TOTAL $19,136,104.27 4 Those assessments were related to tax deductions claimed by the respondent in connection with his investments in the Infomercial Schemes. Those tax deductions were disallowed by the applicant. 5 On 23 November 2000 the applicant issued further Notices of Amended Assessments to the respondent for the years ended 30 June as follows: Year Amount 1995 $ 243,360.31 1996 $ 123,141.55 1998 $2,619,580.49 TOTAL $2,986,082.35 6 In February 2001 the applicant filed a writ in the Supreme Court of Western Australia to recover from the respondent the amounts of both the October and November 2000 assessments as well as interest and other charges. 7 On 3 August 2001 the respondent commenced review proceedings in the AAT in respect of each of the applicant's decisions to disallow the respondent's objections to the assessments issued on 23 October 2000. In February 2005 the respondent withdrew the proceedings. Pursuant to s 42(A)1B of the Administrative Appeals Tribunal Act 1975 (Cth) the affect of the withdrawal was that the AAT proceedings were considered to have been dismissed. 8 In Australian Securities & Investments Commission v Infomercial Management Group Pty Ltd [2002] VSC 262 at [58] the Supreme Court of Victoria held that certain Infomercial schemes were a fraud on the investors, if not on the Australian Taxation Office. These schemes, so claims the respondent, were the ones in which he had invested. 9 Importantly, other than in relation to a very small sum comprised in the 1998 assessment, none of the November 2000 assessments concerned the respondent's investments in the Infomercial Schemes. The assessment for 1998 for $2,619,580.49 was subject to objections by the respondent. These objections failed, as did a subsequent review before the Administrative Appeals Tribunal (AAT). In February 2005 an appeal to this Court from the decision of the AAT was dismissed by consent. The November 2000 assessments for 1995 and 1996 have never been the subject of an application for review or legal challenge. 10 On 15 June 2005 the applicant obtained summary judgment in the Supreme Court of Western Australia against the respondent for the sum of $38,084,522.24, including interest. The respondent did not consent to the judgment but did not oppose it. 11 On 17 March 2006 the Deputy Commissioner issued a bankruptcy notice which was deemed served on the respondent on 4 August 2006 requiring payment, within 21 days after service, in the amount of $38,051,066.24. The amount demanded comprised the sum of the judgment less an amount of $33,456 described in the bankruptcy notice as "payments made and/or credits allowed since date of judgments or orders". The bankruptcy notice was in the form prescribed: Bankruptcy Regulations 1996 (Cth), reg 4.02, Form 1. The Schedule set out the amount claimed by the applicant to be due as follows: SCHEDULE Column 1 Column 2 1. Amount of judgments or order $38,084,522.24 plus 2. Legal costs if ordered to be paid and a specific amount was not included in the judgments or orders (see Note 1, below) $0.00 plus 3. If claimed in this Bankruptcy Notice, interest accrued since the date of judgments or orders (see Note 2, below) $0.00 4. Subtotal $38,084,522.24 less 5. Payments made and/or credits allowed since date of judgments or orders $33,456.00 6. Total debt owing $38,051,066.24

12 The respondent has failed to comply with the bankruptcy notice or to satisfy otherwise the provisions contained in s 40(1)(g) of the Act. 13 The amount of $33,456 at item 5 of the Schedule comprises: · $9,516 on 30 August 2005 as a result of a notice of assessment issued to Mr Cumins for the year ended 30 June 2004; · $7,140 on 30 August 2005 as a result of a notice of assessment issued to Mr Cumins for the year ended 30 June 2003; and · $16,800 by way of 16 garnishee payments of $1050 from the respondent's employer. 14 On 23 August 2006 the respondent filed an application in the Supreme Court of Western Australia for an extension of time to set aside the judgment on the basis that he was defrauded by the promoters of a tax avoidance scheme. In February 2007, the respondent's application was dismissed. The respondent filed an application for review by the Court of Appeal, which was ultimately dismissed: Cumins v Deputy Commissioner of Taxation for the Commonwealth of Australia [2007] WASCA 30. 15 The respondent also failed in proceedings in this Court by which he had sought to set aside the bankruptcy notice. This culminated in the dismissal of his appeal to the Full Court in December 2007: Cumins v Deputy Commissioner of Taxation [2007] FCAFC 207. 16 On 12 November 2007 the respondent's solicitors wrote to the AAT requesting it to reinstate the AAT proceedings abandoned by the respondent in 2005. This was shortly after the Court of Appeal dismissed the respondent's appeal against the decision refusing an extension of time within which to appeal. The Tribunal has yet to make a decision whether to reinstate the proceedings. The applicant has opposed the application for reinstatement. 17 Since then the respondent has filed a further application in the AAT. The application is to extend time for lodging an application for review of a decision. It concerns the sum of $9,375 which forms a part of the respondent's taxable income for the year ended 30 June 1998 and which was the subject of the amended tax assessment issued on 23 November 2000. It is yet to be determined.

VALIDITY OF BANKRUPTCY NOTICE 18 The petition is opposed on grounds that the bankruptcy notice which underpins the petition is invalid because it overstates the amount in fact due. The respondent asserts that there is an understatement in item 5 of the Schedule to the bankruptcy notice of payments made and/or credits to which he is entitled relating to the period between the date of the judgment and the date of issue of the bankruptcy notice. 19 The alleged misstatements, by reason of missed credits and payments in item 5 of the Schedule to the bankruptcy notice, originally fell into the following four categories. The third and fourth of these were the subject of an earlier decision in this matter: Deputy Commissioner of Taxation v Cumins [No 4] [2008] FCA 558. They are not pressed by the respondent, leaving only the first two categories for consideration: (a) PAYG payments totalling $9,516 received on behalf of the respondent by the applicant effectively on 14 August 2005; (b) general interest charge credits arising from garnishee payments totalling $7,350 made by the respondent before the date of judgment but not credited to his account until after the date of judgment, resulting in an unquantified overcharge of general interest charges. The overcharge relates to the periods from the respective dates of receipt, as contended for by the respondent, to the judgment date. The applicant did not claim interest in the bankruptcy notice for the post‑judgment period; (c) missed credits amounting to $31,007.72; and (d) a rounding credit of four cents.

PAYG Payments 20 PAYG payments were made on the respondent's behalf by his employer for the 2005 tax year as follows: PAYG Period Date Received by the ATO Amount of PAYG Paid ($) July 2004 23/08/2004 793 August 2004 21/09/2004 793 September 2004 27/10/2004 793 October 2004 22/11/2004 793 November 2004 17/12/2004 793 December 2004 28/02/2005 793 January 2005 16/02/2005 793 February 2005 21/03/2005 793 March 2005 21/04/2005 793 April 2005 20/05/2005 793 May 2005 20/06/2005 793 June 2005 20/07/2005 793 9,516

21 However, it was not until the respondent's group certificate was lodged by his employer with the applicant on 14 August 2005, that the applicant was able to identify that the above PAYG instalments had been received on behalf of the respondent: Cumins v Deputy Commissioner of Taxation [2006] FCA 1847 at [5]. The respondent submits accordingly that the effective date of payment of $9,516 on his behalf was 14 August 2005 and that this amount relating to the 2005 tax year should have been included in item 5 of the Schedule to the bankruptcy notice, as "payments made". 22 The last two payments were received after the date of the judgment and before the issue of the bankruptcy notice.

General Interest Charge Credits 23 The general interest charge credits, said to have been omitted from item 5 of the Schedule to the bankruptcy notice, related to seven garnishee payments totalling $7,350 for each of the months November 2004 to May 2005 inclusive. Each garnishee payment was in the amount of $1,050 and was said to have been mailed by the respondent's employer about the beginning of each month from December 2004 to June 2005 inclusive, to the applicant to an address - GPO Box 4596SS Melbourne Vic 3000. Each payment, the respondent submits, was, by virtue of s 160 of the Evidence Act 1995 (Cth), deemed to have been received on the fourth working day after posting and thereby, in each case to have been received by the applicant for the purposes of s 8AAZM of the Taxation Administration Act 1953 (Cth). However, the applicant says that the amount of these seven payments, totalling $7,350 was not received until 22 September 2005 and was then credited to the respondent's account on that date. 24 It follows, the respondent submits, that the failure to account for the payments at the time each was received by the applicant, according to the respondent, led to an overstatement of general interest charges in respect of which a "credit" should have been "allowed" in item 5 of the Schedule. The respondent has not quantified the amount of the interest said to have been overcharged. 25 It follows, submits the respondent, that the amount of the "debt owing" in the Schedule was overstated, at least, by the amount of $9,516 and the amount of the general interest charge credit to which he says he was then entitled.

Section 41(5) of the Act 26 Threshold questions arise as to whether s 41(5) of the Act has application to the bankruptcy notice and, if so, whether notice under that section has been given by the respondent to the applicant in respect of the alleged misstatements in the bankruptcy notice. 27 Section 41(5) provides: A bankruptcy notice is not invalidated by reason only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due, unless the debtor, within the time allowed for payment, gives notice to the creditor that he or she disputes the validity of the notice on the ground of the misstatement. 28 The respondent submits that: (a) No s 41(5) notice was required concerning the misstatements in the bankruptcy notice. (b) Alternatively, notice was given by means of par [36] of an affidavit of Mr Cumins sworn on 14 August 2006 and which is wide enough to cover all the missed credits and payments. (c) Alternatively, the par [36] notice is wide enough to cover at least the PAYG payments and the garnishee payments which give rise to the overcharge of interest.

Was a section 41(5) notice required? 29 The respondent relies upon the decision in St George Wholesale Finance Pty Ltd v Spalla (2000) 181 ALR 682 in which Heerey J concluded that no notice under s 41(5) was required to be given. The bankruptcy notice in that case was identified as beingdefective in two respects. First, credits and payments totalling approximately $1.4 million had been omitted from item 5 of the Schedule to the bankruptcy notice. Second, the total amount due exceeded the amount in fact due to the extent of the omitted credits and payments. It was held that the defect in the bankruptcy notice was not "only that the sum specified in the notice as the amount due to the creditor exceeds the amount in fact due". There was another, albeit related, defect, namely, the omitted credits and payments under item 5. 30 In Robert Hudson (Junior) v Thomas James Donald [1997] FCA 852, decided before St George, Lindgren J also considered the application of s 41(5). The case concerned a bankruptcy notice, the form of which, as in this case, was that set out in Form 1, Schedule 1, prescribed under the Bankruptcy Regulations 1996 (Cth), reg 4.02. 31 His Honour said: How do subs 41(5) and subs (6) apply to the new form? Clearly, the expression in subs 41(5) 'the sum specified in the notice as the amount due to the creditor' is apt to refer at least to the amount shown as 'Total debt owing'. Does it also refer to the component parts of that amount, in particular, 'Amount of judgment or order'? Although the contrary is arguable, I think that it does, at least in a case such as the present, where the overstatement in the 'Total debt owing' is no more than a reflection of an overstatement in one of those elements. Except in a case of an arithmetical error of addition, an overstatement of the 'Total debt owing' will always predicate an error in one or more of the component elements. To confine the operation of the subsections to a case where there is an overstatement only of the 'Total debt owing' due to an arithmetical error of addition would be too narrow a construction. Where, as here, the overstatement of the amount of the 'Total debt owing' is attributable to an overstatement in the amount of one or more components in the Schedule, the excessive specification of 'the sum specified in the notice as the amount due to the creditor' to which subs 41(5) refers, extends to embrace the corresponding and causative excessive specification in the Schedule of an amount or amounts of the latter kind. 32 An appeal from that decision was dismissed: Robert Hudson (Junior) v Thomas James Donald [1998] FCA 227. 33 I respectfully consider that the wider construction in Robert Hudson Jnr is to be preferred to the narrow construction in St George. It would appear that the decision in Robert Hudson Jnr was not brought to the attention of the Court in St George, nor does it appear from his Honour's reasons that there was full argument on the question. Accordingly, I would respectfully adopt the reasoning on this point in Robert Hudson Jnr. In doing so, I am conscious that St George was followed by the Federal Magistrates Court in SGRO v Liberty Funding Pty Ltd (2004) 207 ALR 625. Once again, however, Robert Hudson Jnr was not cited by the parties or considered by the Court. Furthermore, s 41(5), in contrast to s 306, is not expressed in terms of the existence of a "defect" in a bankruptcy notice. Rather, it concerns whether the amount specified in the bankruptcy notice as due to the creditor exceeds the amount in fact due. Inevitably any overstatement will broadly be for one or two reasons. First, there is an error or errors in one or more of items 1-5 set out in column 2 of the Schedule to the bankruptcy notice. Then, when items 1-5 are added up they produce an excessive total at item 6. Second, there is an arithmetical error in adding up items 1-5. Of course there could be errors of both kinds occurring in the one notice. The intent of s 41(5) is, in my opinion, to consider the question of whether the amount stated is excessive as well as why that is the case. This approach to its construction is consistent with the observations of the Full Court in Seovic at [36] to which I have referred concerning the need for the debtor, when giving notice under s 41(5), to provide sufficient information to enable the creditor to identify the nature of the misstatement. I apprehend that this was intended to mean that information needs to be provided disclosing not just that the amount stated as due is excessive but the reason(s) why that is said to be so. 34 The question of the excessive amount requires then a composite analysis of the overstatement. It is not apt to characterise the composite parts as discrete "defects".

Did the affidavit of Cumins contain a notice under section 41(5)? 35 Paragraph [36] of an affidavit sworn by the respondent on 14 August 2006 states: The Bankruptcy Notice is for an amount of $38,051,066.24 after a credit for an amount of $33,456. I verily believe that the credited amount may be the result of an amendment to a tax assessment. In addition during the period of May 2005 to 14 March 2006 I have paid to the Respondent an amount of $10,500 which I verily believe may not have been credited against the amount of the Judgment debt. Therefore I verily believe that the Bankruptcy Notice exceeds the amount of the Judgment debt due and payable relied upon for the Bankruptcy Notice. 36 The affidavit was filed in support of the respondent's earlier application to set aside the bankruptcy notice which was dismissed both at first instance and on appeal. 37 The respondent submits that this paragraph constitutes notice for the purposes of s 41(5) and is wide enough to cover all of the missed credits and payments; alternatively, it is wide enough to cover at least the alleged misstatements related to the PAYG payments and garnishee payments. I am satisfied that notice for the purposes of s 41(5) could be given by means of an affidavit served on a creditor. The section is silent as to the method of giving notice and it is not necessary in giving notice to expressly refer to s 41(5): Hussain v King Investment Solutions (2006) 153 FCR 428 at [19]-[20]. 38 Such notice must, by virtue of s 41(5), be given by the debtor within the time allowed for payment under the bankruptcy notice. The bankruptcy notice was deemed to have been served on the respondent on 4 August 2006 pursuant to orders made by Registrar Gilich on 14 July 2006 in the matter of PEG 177 of 2006. It was then amended on 19 July 2006 by a delegate of the Official Receiver such that the respondent was required to comply with the terms of the notice within 21 days after 4 August 2006. The affidavit was served on the Commissioner on 14 August 2006. Accordingly, notice was given within the time allowed. 39 However, in my opinion it does not constitute notice which is wide enough to cover the asserted misstatements in the bankruptcy notice as a whole or alternatively the two related to the PAYG and garnishee payments. 40 The Full Court in Seovic Civil Engineering Pty Ltd v Groeneveld (1999) 87 FCR 120 in obiter set out what, in principle, is required to constitute notice of a "misstatement" for the purposes of s 41(5). In so doing it considered but doubted the correctness of both Re Charles Murray (1959) 18 ABC 152 at 156 upon which the respondent here relies, as well as Re Wilhemsen; Ex parte Gould (1986) 11 FCR 107 at 108. It said at [36]: The expression 'the misstatement' strongly suggests that the debtor must do more than merely assert that there is a misstatement in the bankruptcy notice. The subsection requires the debtor to provide sufficient information in the notice to enable a creditor to identify what is said to be the alleged misstatement. Only then does the debtor's notice displace the general rule established by s 41(5), that the bankruptcy notice is not invalidated only by reason that the sum specified therein as the amount due to the creditor exceeds the amount in fact due. (emphasis in original) The Court continued: The point of the notice is to draw to the creditor's attention the misstatement, thereby giving the creditor the opportunity to consider, for example, whether the bankruptcy notice should be withdrawn and a fresh notice, correcting the misstatement, issued. If the creditor is given no hint in the notice as to the nature of the misstatement, there is a considerable risk that the debtor will be able to take unmeritorious advantage of minor errors (such as the small mistake in the present case) and that unnecessary and wasteful litigation will eventuate. It is no answer to say that the creditor can ask for particulars, since the debtor would not be obliged to give any until after litigation had been instituted. Indeed, a debtor wishing to take advantage of the technicalities of the law of bankruptcy might be well-advised to say as little as possible for as long as possible about the true nature of the alleged misstatement in the bankruptcy notice. The requirement for some specificity did not, the Full Court considered, extend to require the identification of the misstatement with "complete precision" or that the debtor "specify the exact amount of the alleged excess". A debtor's notice should be given a "benevolent construction". 41 I respectfully agree with these observations made by the Full Court and adopt them here as apt to the proper construction of s 41(5). 42 The respondent and his solicitor, Mr Kevin Dundo, each swore affidavits on 29 April 2008 to the effect that the word "Judgment" in the last sentence of para [36] was placed there in error. The respondent submits that, in any event, that error, on a fair reading, is obvious as a matter of construction. For present purposes I will proceed on the assumption, without deciding the construction question that the last sentence should be read in the way the respondent contends. The written evidence as to the error made would not, in my opinion, affect the objective meaning at the time the affidavit was provided to the applicant. 43 The respondent submits that this sentence, read in that way, is sufficient to cover all four grounds of asserted misstatement. Re Charles Murray would support this. I have, however, declined to follow that decision. 44 Applying even the most benevolent constitution to the last sentence in para [36], I do not consider that it provides sufficient information to enable the applicant to identify the asserted misstatements presently relied upon. So far as concerns the alleged misstatements said to arise by reason of missed credits amounting to $31,007.72 as well as rounding credit of four cents I repeat what I said in Deputy Commissioner of Taxation v Cumins [No 4], particularly at [16]. 45 The respondent then submits that para [36], taken as a whole, is sufficient to embrace the misstatements related to the PAYG and garnishee payments. He says that he was at a "severe informational disadvantage" during the period when a s 41(5) notice had to be given. I take this to mean, at least, that during the period in which notice was required to be given he did not have a copy of the taxation account maintained in respect to him by the applicant showing amounts received from him or on his behalf from time to time. A copy of this document was before the Court. It is discovered document No 1 in Part 1 of Schedule 1 in the applicant's list of documents made pursuant to orders 1 and 2 of District Registrar Jan made on 29 January 2008 filed on the 6 February 2008. It is described as the "Original income tax account history for Brian Cumins showing transactions and interest for the period 05.01.99 to 25.01.08" and is dated 31.01.08. 46 If the respondent had had a copy of this document during the period in which notice under s 41(5) might have been given by him to the applicant, he would have seen, for example, that, contrary to his understanding, the seven alleged garnishee payments of $1,050 each had not been recorded as received by the applicant in each month from December 2004 to June 2005 inclusive. Further, in relation to the $9,516 PAYG payments he would have seen that this amount in respect of the financial year ended 30 June 2005 was not credited to his account until 21 July 2006. This too would have been contrary to his understanding that it should have been credited to his taxation account in the period between the date of judgment and the date of the bankruptcy notice. He would have had sufficient information to give notice under s 41(5) in respect to both of those matters. 47 In this context the respondent submits that where a government body is involved and has the benefit of a statutory regime, the s 41(5) notice requirements should not be interpreted strictly or narrowly. There is, in my opinion, no basis to this submission. There is only one proper construction of the section. What will constitute sufficient notice will vary from one case to another. If a debtor does not have the necessary information to enable notice to be given under s 41(5) and could not have obtained it by reasonable endeavours, then this may well form a basis for seeking an extension of time under s 33(1)(c) for giving notice when that information, by whatever means, comes into the hands of the debtor: cf Deputy Commissioner of Taxation v Cumins [No 4] [2008] FCA 558 at [20]‑[24]. I decided there that the respondent could, merely by making a request, have obtained a copy of his taxation account from the applicant. I would not revise that conclusion even after considering the content of paras [5]-[19] of the affidavit of Mr Kevin Dundo sworn on 29 April 2008. I do not accept that the respondent was at any disadvantage in this respect. If he was, it was occasioned by his own inaction. 48 The respondent points to the fact that the sum of $10,500 mentioned in para [36] is a multiple of $1,050 which was the amount garnisheed on a monthly basis in the hands of the respondent's employer. This, he submits, should have alerted the applicant to look closely at payments received and credits allowed in respect of the period after judgment and before the bankruptcy notice issued. I do not accept that submission. The onus is upon the respondent to sufficiently articulate the misstatements upon which it relies. 49 Even if para [36] were thought to have put the applicant on such a train of enquiry, it would have been unproductive. First, the period mentioned in para [36] concerning payments of $10,500 is said to be between May 2005 to 14 March 2006. However, what is now complained about concerns seven payments of $1,050 totalling $7,350 alleged to have been made between December 2004 to June 2005. This involves an overlap of but two months across a combined period of 15 months. Second, according to the applicant's records, the amount of $7,350 was received together with one other payment of $1,050, a total of $8,400, on 22 September 2005. This amount was included in the figure set out under item 5 of the Schedule to the bankruptcy notice. Paragraph [36] states that the $10,500 was paid to the applicant between May 2005 and 14 March 2006. Obviously 22 September falls between those two dates. The applicant did direct its attention to garnishee payments made by the respondent for the purposes of the bankruptcy notice and gave a credit in item 5 for $16,800, which amount includes the $7,350. The $16,800 comprises the following garnishee payments made according to the applicant's records, between the date of the judgment and the date of the bankruptcy notice. Amount Date received $1,050.00 22 August 2005 $1,050.00 31 August 2005 $8,400.00 22 September 2005 $1,050.00 30 September 2005 $1,050.00 3 November 2005 $1,050.00 5 December 2005 $1,050.00 5 January 2006 $1,050.00 6 February 2006 $1,050.00 7 March 2006 $16,800.00

50 The amount of $16,800 is included in the amount of $33,456 contained at item 5 of the Schedule to the bankruptcy notice. That figure also includes two other amounts according to an affidavit sworn by Nola Kathryn Rice, a public service employee with the ATO: Cumins v Deputy Commissioner of Taxation [2007] FCAFC 207 at [10]. The respondent acknowledges this in his affidavit sworn 6 May 2008. The amounts are set out under para [13] above. There was no reason, in my view, for the applicant to think that para [36] was directed to an overcharge of general interest charges related to seven of the garnishee payments totalling $7,350 allegedly made prior to the date of judgment. 51 Further, in my opinion, nothing in para [36] would have alerted the applicant to the matter of the PAYG payments. 52 In any event, the applicant's considered view was that the PAYG payments of $9,516 in respect of the 2005 tax year did not give rise to any entitlement in the respondent to have that amount included in item 5 of the Schedule to the bankruptcy notice. That view was vindicated by Siopis J at first instance: Cumins v Deputy Commissioner of Taxation [2006] FCA 1847 and on appeal: Cumins v Deputy Commissioner of Taxation [2007] FACFA 207 in proceedings in which the respondent sought to have the bankruptcy notice set aside for this very reason. 53 The respondent's further and better particulars of its grounds of opposition assert, in effect, that he did not have, at the times of the hearings at first instance and on appeal, the evidence disclosing the details of the PAYG payments made. This is of no consequence. Both cases dealt with the total amount of $9,516. It matters not, in the result, that some payments were received before, and some after, the judgment date. 54 The respondent submits that on this point the decision in Pedikaris v Deputy Commissioner of Taxation [No 2] [2007] FCA 2087 should be followed. Particular reliance is placed on para [99]. I do not agree. At that paragraph, Graham J was considering the relevance of PAYG payments in the context of recovery proceedings. Furthermore, his Honour, at paras [92]‑[93], made findings on the issue of when the Commissioner was obliged to give credits for PAYG payments which are entirely consistent with the concurrent findings of Siopis J and the Full Court to which I have referred.

Bankruptcy notice did not overstate amount due 55 If I am wrong about the reach of para [36] and it is sufficient to embrace the alleged misstatements relied upon, I, nonetheless, am not persuaded that there were such misstatements in the bankruptcy notice as asserted. As to the $9,516 PAYG payments, the respondent submits that an issue estoppel does not arise between these parties in the petition proceedings by reason of the matters decided by Siopis J and the Full Court. It is unnecessary to decide that question. I have considered both cases and respectfully am in agreement with the reasons and conclusions of Siopis J, particularly at [11] where his Honour said: I reject the applicant's submission. In my view, the question of when the credit in respect of the PAYG deductions accrued to the applicant is to be assessed by reference to s 18-15(1) of Sch 1 of the TAA. There is no reason not to give effect to that statutory provision. It follows that the applicant only became entitled to the credit once the assessment was made for the tax year in respect of which the PAYG deductions were made. In those circumstances, I find that at the time of the issue of the bankruptcy notice on 17 March 2006, the sum of $9516 did not comprise an amount in respect of which a deduction should have been recorded in the bankruptcy notice, as either a payment made or a credit due. The bankruptcy notice did not, therefore, overstate the amount due and was not invalid. I decline to set it aside. 56 There was no challenge to this particular finding on appeal. Nonetheless, the Full Court at [39] noted its agreement with it. 57 The respondent further submits that the proper characterisation of the PAYG instalments in issue for the purposes of item 5 of the bankruptcy notice is as "payments made". This, he says, avoids the confusion generated by focusing on the phrase "credits allowed" and meshing that with the giving of administrative credits under the TAA when a tax assessment is made. 58 He submits that he is entitled to the benefit of those payments made on his behalf and already in the hands of the Commissioner for bankruptcy notice purposes. This, in effect, is an attempt to distinguish the above decisions at first instance and on appeal in relation to when it was that the respondent was entitled to a credit for the $9,516 PAYG payments for the 2005 financial year as being confined to tax purposes. However, it is to be remembered that those cases were concerned with an application to set aside the bankruptcy notice. The decisions sit in that context. I reject the submission. The respondent was not entitled to the credit during the period between the date of judgment and the date of issue of the bankruptcy notice. Whilst amounts totalling $9,516 were undoubtedly paid to the applicant on behalf of the respondent they did not constitute "payments made" for the purposes of the bankruptcy notice. 59 As to the garnishee payments of $7,350, it is unnecessary to decide when they were received by the applicant, whether on 22 September 2005 as the applicant contends, or on various dates between December 2004 and 6 June 2005 according to the respondent. Accepting for present purposes only that they were received on the dates asserted by the respondent, the resultant overcharge of general interest charges extends only to the date of judgment. The applicant did not claim interest in the bankruptcy notice for the post-judgment period. Accordingly, it is the amount of the judgment debt which would, to the extent of those overcharges, be incorrect. Such amounts were not credits or payments required to be included in item 5 of the Schedule to the bankruptcy notice. What I said in Deputy Commissioner of Taxation v Cumins [No 4] [2008] FCA 558 at [26] is apt on this point. The fact of such an overcharge would not operate to render, as a matter of law, the amount due under the bankruptcy notice as incorrect.

Extension of time under s 33(1)(c) 60 The respondent, despite an invitation by counsel for the applicant to seek an extension of time under s 33(1)(c) of the Act for the giving of a notice under s 41(5) covering the alleged missed payments or credits, declined to do so. Accordingly, the position of the respondent is, as is evident also from his outline of closing submissions, confined to reliance upon para [36] of Mr Dundo's affidavit as constituting notice under s 41(5) for the purposes of the alleged missed payments and credits. 61 If the respondent had sought such an extension of time, I would have refused to grant it on discretionary grounds as being futile for the same reasons as are set out under paras [55]-[59] above.

Section 306 of the Act 62 The respondent submits that where notice in terms of s 41(5) was required, but not given, in respect to the alleged missed credits and payments, then the bankruptcy notice is nevertheless invalid and a nullity and is not saved by the operation of s 306 of the Act. This, he submits, is so on two separate grounds. First, the proper completion of item 5 in the Schedule to bankruptcy notices is a requirement made essential by the Act. Second, in this case, the missed payments and credits not reflected against item 5 could reasonably mislead a debtor in the position of Mr Cumins as to what is necessary to comply with the notice. The respondent, in this respect, relies upon Adams v Lambert (2006) 228 CLR 409 at [27]. He submits that as he had not personally made the garnishee and PAYG payments or done the ATO calculations for credits, he could have no idea of what was or was not comprised in the figure $33,456 in Item 5. 63 I do not accept these submissions. A bankruptcy notice is not liable to be set aside by reason only of an overstatement unless the debtor gives notice to the creditor under s 41(5). I have found that such notice was required but not given. Accordingly, in my opinion, s 306 does not arise for consideration. I agree with what Sackville J said in obiter in Re Murdoch; Ex parte Australia & New Zealand Banking Group Ltd[1994] FCA 737 at p 10 that where no notice under s 41(5) was given then the bankruptcy notice would not be invalid even if the overstatement of the amount due is capable of misleading the debtor. His Honour's remarks sat in the context of his consideration of s 306 of the Act in respect to an overstatement in a bankruptcy notice but where no notice under s 41(5) had been given. The parties had proceeded on the assumption that s 306 had application in those circumstances. His Honour doubted the correctness of the assumption but the case was decided on the basis of it. His Honour's doubt was in my opinion, soundly based. 64 In Adams v Lambert, upon which the respondent relies,the bankruptcy notice was said to have been invalid because it referred to the incorrect statutory provision under which interest was claimed. It did not concern any asserted overstatement in the bankruptcy notice of the amount due. Section 41(5) had no application. Section 306 did have application but the case is of no assistance in dealing with the nature of the interrelationship between s 41(5) and s 306. 65 Alternatively, even if relevant notice under s 41(5) had been given, s 306 would have no application. I have found that there was no overstatement of the amount due under the bankruptcy notice. No other formal defect or irregularity is relied upon by the respondent. 66 In the present case, the applicant either obtains "the benefit" of s 41(5) because no notice was given, or alternatively, if notice was given she has rebutted the allegations of misstatements in the amount stated to be due under the bankruptcy notice. Section 306 relieves against the invalidating consequences of mistakes in the preparation of a bankruptcy notice: Adams v Lambert at [18] and [34]. There were no mistakes in the present bankruptcy notice. The section assumes the existence of a defect or irregularity. This much was conceded by counsel for the respondent. None exists here. Re Florance; Ex parte Turimetta Properties Pty Ltd (1979) 28 ALR 403, cited by the respondent is of no assistance on this question.

Section 52(1)(c) of the Act - is the debt relied upon proved? 67 Finally, the respondent submits that even if the bankruptcy notice were held not to contain any misstatement of amounts to be allowed or due, the amended petition nevertheless does not comply with s 52 of the Act. The amended petition relies on a debt of $38,032,100.01 owing by the Respondent. This debt, the respondent submits, is not "still owing" and the requirements of s 52(1)(c) of the Act have not been met. 68 I reject this submission. On 6 May 2008 the judgment debt was varied by the Supreme Court of Western Australia to reduce it by $31,007.72. This reflects the amount of certain payments and credits which, since the date of judgment, the applicant volunteered should be applied to the judgment debt by way of reduction. The bankruptcy notice claimed an amount that is calculated by reference to the amount of the original judgment. It is not to the point that the amount of that judgment has been reduced: Emerson v Wreckair Pty Ltd (1992) 33 FCR 581 at 587. The affidavit of Deborah Jayne Thiele sworn on 12 May 2008, on behalf of the applicant deposes that the amount of the outstanding debt as at that date was $37,983,152.29. This is the amount contained in the Amended Creditor's Petition less the amount by which the judgment debt was varied as well as the further amount of $17,940 in respect of credits applied after December 2007. It is the amount of the debt on which the applicant relies. This satisfies, as a matter of fact, the requirement under s 52(1)(c) of the Act. 69 The respondent further submits that the requirement under s 52(1)(c) has not been met because the judgment, as varied, has not been extracted and is accordingly presently unenforceable. Reliance was placed upon the decision of Re Hanby; Ex parte Flemington Central Spares Pty Ltd (1967) 10 FLR 378 at 381. That case concerns a circumstance where the judgment debt relied upon in the bankruptcy proceeding had actually been set aside. That is not the case here. Indeed the respondent's application to set aside the judgment debt was dismissed on 6 May 2008. The respondent has filed an appeal notice against the judgment. The grounds of appeal are not disclosed in this. I was not taken to the merits of the proposed appeal.

Section 52(2)(b) of the Act - discretionary considerations 70 The respondent submits that I should, in the exercise of my discretion, decline to make a sequestration order for "other sufficient cause": s 52(2)(b) of the Act. Three matters arise. 71 First the respondent submits that, even if the PAYG payments of $9,516 did not give rise to an entitlement to a credit for that amount in the bankruptcy notice, I should take into account, as a discretionary consideration, the fact that these payments were made. No issue estoppel arises in this respect: Makhoul v Barnes (1995) 60 FCR 572 at 582. However, the fact that payments were received which did not, as a matter of law, give rise to any entitlement to a credit in that amount for a tax debt in respect of which judgment was given, does not commend itself to an exercise of discretion not to make a sequestration order in the overall circumstances of the case. I would not exercise my discretion to that end. 72 The second matter concerns the pending AAT proceedings. The respondent makes the following submissions. It cannot be said that the result of success by him in the proceedings before the AAT to have that matter re-opened and the interest deduction for borrowings in respect of the Infomercials allowed, would be that there was, in any event, still at least, part of the assessment, unaffected by the Infomercial interest, standing. If he succeeds in the AAT proceedings, the Commissioner must implement the findings of the AAT and a fresh assessment would have to be issued: s 14ZZL of the Taxation Administration Act 1953 (Cth) and s 170(1) of the Income Tax Assessment Act 1936 (Cth). Only if and when that assessment occurs would there be an enforceable liability against him. There is no liability on him to pay tax until the relevant notice of assessment has been given: White Industries Australia Ltd v Commissioner of Taxation [2003] FCA 599; (2003) 129 FCR 276 at [27], 282. 73 The respondent further submits that even if it were to be accepted that he is presently facing an unshakeable claim of some $4.8 million in respect of the 1998 assessment, that figure raises very different issues in relation to possible payment or compromise of the claim than if he were to face the current $38 million claim in the bankruptcy notice. The figure of $4.8 million is, I infer, a reference to a finding made in an earlier decision that the total amount of the judgment debt which is not related to the AAT applications is in the order of $4.8 million: Commissioner of Taxation v Cumins [2008] FCA 353 at [63]. 74 Mr Kevin Dundo in his 29 April 2008 affidavit annexed a copy of the Outline of Submissions filed by the respondent in his application to the AAT seeking an extension of time for lodging an application to review the decision of the applicant made in an amended assessment in respect of the 1998 tax year pursuant to s 29(7) of the Administrative Appeals Tribunal Act 1975 (Cth) as well as his application in that matter for amendment or extension of the grounds of the objection lodged by him in respect of the amended assessment pursuant to s 14ZZK(a) of the Taxation Administration Act 1953 (Cth). 75 There was no argument before me as to the content of these submissions. I earlier refused to adjourn the hearing of this petition despite the currency of the respondent's two applications to the AAT. I was not then satisfied that the respondent had established genuine and arguable grounds in relation to either of his AAT applications: Commissioner of Taxation v Cumins [2008] FCA 353. That position has not altered. The respondent's submissions on the exercise of discretion are predicated upon his being successful, on the merits, before the AAT. The likelihood of that occurring has not been established. 76 Third, the respondent submits that, as found in St George at [41], the procedures provided by the Act are not intended to be used for the determination of complex accounting issues as between the petitioning creditor and debtor. This is not such a case. No complex accounting issues are present. 77 I would not exercise my discretion under s 52(2)(b) in favour of the respondent on any of these bases.

CONCLUSION 78 I am satisfied that the respondent committed the act of bankruptcy alleged in the petition as amended, and that the matters set out in s 52(1) of the Act have been proved. I am also satisfied that there has been compliance with the Federal Court (Bankruptcy Rules) 2005 (Cth). 79 Mr Mark Anthony Conlan has consented to be the trustee of the respondent's estate in the event that a sequestration order is made. 80 A sequestration order should be made against the estate of the respondent. The applicant's costs including any reserved costs should be taxed and paid out of the respondent's estate. I certify that the preceding eighty (80) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.

Associate: Dated: 30 May 2008 Counsel for the Applicant: Mr L A Tsaknis

Solicitor for the Applicant: Australian Government Solicitor

Counsel for the Respondent: Dr J T Schoombee with Mr M F Holler

Date of Hearing: 18 March, 14-15 April, 12 May 2008

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Judgment (21 paragraphs)

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