Deputy Commissioner of Taxation v Meletsis

REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 The Deputy Commissioner of Taxation ("DCT") has petitioned for a sequestration order in respect of the estate of Irene Meletsis. The relevant act of bankruptcy is the failure by Ms Meletsis to comply with a bankruptcy notice served on her on 6 February 2015. The bankruptcy notice claimed payment of the amount of $2,867,548.19 based on a judgment debt of $2,862,137.58 plus interest of $5,410.61. The creditor's petition was filed on 5 March 2015 and served with accompanying documents on 10 April 2015. 2 On 19 June 2015, Ms Meletsis gave notice of her intention to oppose the making of a sequestration order on the following grounds: 1. The creditor's petition ought to be adjourned until after the hearing and determination of the AAT proceeding between the applicant and the respondent. 2. Further, or in the alternative, the Court ought to exercise its discretion to determine that there is not in truth and reality a debt owing to the applicant. 3. In the premises, there is other cause for a sequestration order not to be made against the respondent. 3 An affidavit sworn by Mr Halperin, the solicitor for Ms Meletsis, was filed with a notice. Mr Halperin deposed to the existence of current proceedings in the Administrative Appeals Tribunal ("the Tribunal") in which Ms Meletsis is reviewing the decision of the DCT partly to disallow an objection by her in relation to amended tax assessments for the years ended 30 June 2006 to 30 June 2011 inclusive. The tax due and payable under those amended assessments formed part of the debt claim in the Supreme Court proceedings in which the DCT obtained judgment for the debt on which the bankruptcy notice was based. Mr Halperin deposed that the Tribunal proceedings commenced on 4 May 2015, but on 8 May 2015 the Senior Member recused himself. In consequence, the matter had to be re-listed, and the hearing is to recommence on 17 August 2015 on an estimate of five days. Mr Halperin annexed to his affidavit the witness statements filed in the Tribunal proceedings on behalf of Ms Meletsis and deposed that in addition to those witness statements, Ms Meletsis had filed in the Tribunal proceeding 19 folders of documents. Mr Halperin deposed that Ms Meletsis seeks an adjournment of the creditor's petition to a date after the hearing and determination of the Tribunal proceeding. 4 The DCT opposed the adjournment application principally on the basis that even if Ms Meletsis was wholly successful in the Tribunal proceedings, there will remain a debt well in excess of the statutory minimum on which the DCT may petition for the sequestration order. That submission was supported by an affidavit sworn by George Khouri, a taxation officer, who deposed to the existence of undisputed tax liabilities totalling $148,972.61. Those tax liabilities formed part of the judgment debt obtained by the DCT on which the bankruptcy notice was founded. The undisputed tax liabilities comprised amounts due and payable under assessments for the years ended 30 June 2007, 30 June 2008 and 30 June 2011 which were not objected to by Ms Meletsis and do not form part of her application to the Tribunal, and also penalties for failure to lodge income tax returns on time for the years end of 30 June 2007 to 30 June 2011 inclusive in respect of which Ms Meletsis has not requested any remission. Mr Khouri deposed that: [E]ven if the Respondent is wholly successful before the AAT in discharging her onus of proof and establishing that the Notices of Amended Assessment and Notices of Assessment of Additional Tax and Shortfall Penalty for the years ended 30 June 2006 to 30 June 2011 which issued to the respondent on 27 November 2012 are excessive, the respondent will remain indebted to the Commonwealth for the sum of $148,972.61 as set out in the Statement of Account. Annexure GK-4 being that part of the judgment debt owed pursuant to the notices of assessment … and for the penalties for failure to lodge returns on time plus GIC on those amounts calculated up to 29 June 2015. 5 It was submitted that in the circumstances the Court should not adjourn the creditor's petition pending the hearing of Ms Meletsis' Tribunal proceedings by reason that the DCT has met the requirements of s 52(1) of the Bankruptcy Act 1966 (Cth) ("Bankruptcy Act") and has a prima facie right to a sequestration order. It was submitted that even if Ms Meletsis is successful in her Tribunal proceedings, there would remain an amount owing of $148,972.61 on which the DCT may petition to sequestrate the estate of Ms Meletsis. 6 At the conclusion of the DCT's submissions, Mr Halperin informed the Court that he had been taken by surprise as he was unaware that the judgment debt included amounts due and payable under assessments that were not the subject of the Tribunal proceedings. Mr Halperin sought an adjournment of one month to enable instructions to be obtained and argued that the DCT would not be prejudiced by an adjournment, having regard to the appointment on 21 April 2015 pursuant to s 50 of the Bankruptcy Act of interim trustees to take control of the property of Ms Meletsis pending the determination of the creditor's petition. The Court stood the matter down to give Mr Halperin the opportunity to give consideration of the matters deposed to by Mr Khouri in his affidavit. 7 When the hearing resumed, Mr Halperin advised that he was not a position to be able to explain why there had been no objection to those assessments or why there had been no request for remission for penalties as he was unable to obtain instructions due to his client's unavailability. Mr Halperin, however, did confirm that those assessments were not the subject of the review presently pending before the Tribunal. 8 The court has the power to adjourn the creditor's petition under s 33 of the Bankruptcy Act. Whether an adjournment should be granted is a matter of discretion and I am not persuaded that an adjournment should be granted either for the purpose of obtaining instructions from Ms Meletsis concerning the tax liabilities that are not the subject of the Tribunal proceedings or because of the Tribunal proceedings in relation to the amended assessments that Ms Meletsis is challenging. 9 It is not a new claim that there are tax liabilities that are not the subject of the Tribunal proceeding, amounting to $148,972.61. Those liabilities form part of the judgment debt that was obtained and relate to assessments that were issued years ago. The date of the notice of assessment for the income tax liability for the year ended 30 June 2007 was 10 October 2008, with a due date for payment of 5 June 2008, the date of notice of assessment for the income tax liability for the year ended 30 June 2008 was 17 December 2009, with a due date for payment of 21 April 2009, and that the date of notice of assessment for the income tax liability for the year ended 30 June 2011 was 19 September 2012 with a due date for payment of 21 November 2011. In the circumstances, Mr Halperin has not made out a basis for the adjournment of the creditor's petition to enable instructions to be obtained from Ms Meletsis as to why objections were not lodged and as to why remissions of penalty were not sought. 10 Furthermore, as the Tribunal proceedings, if successful, would not have the result that there is no debt on which the DCT may petition, the fact of the Tribunal proceedings is not a sufficient reason to grant the adjournment of the creditor's petition. For present purposes, I am prepared to accept that Ms Meletsis bona fide challenges part of her tax liabilities and that her application for review in the Tribunal is based on genuine and arguable grounds. Nonetheless, there remain outstanding tax liabilities that are not the subject of any contest in respect of which the DCT has obtained judgment and form part of the amount claimed in the creditor's petition. Mr Halperin submitted that the making of a sequestration order was a draconian consequence having regard to the quantum of the undisputed tax liabilities relative to the tax liabilities that are the subject of challenge. The Commissioner, however, is entitled to proceed on the petition in respect of that part of the judgment debt that is not the subject of contest in the Tribunal proceedings: Re Verma; ex parte Deputy Commissioner of Taxation (1984) 4 FCR 181; Deputy Commissioner of Taxation v Cummins [2008] FCA 353. In the circumstances, Ms Meletsis has also failed to show "other sufficient cause" to enliven the discretion to refuse to make the sequestration order. 11 I am satisfied of the proof of the other matters of which s 52 of the Bankruptcy Act requires proof and, therefore, propose to make a sequestration order. I certify that the preceding eleven (11) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies.