SOCIAL SECURITY - DEBT - Whether released from debt on discharge from bankruptcy - Whether debt incurred by means of fraud - Decision under review affirmed

Bankruptcy Act 1966, ss 153(1), 153(2)(b)

Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337

1. Between 30 June 2001 and 29 March 2006 Mr Roger Fletcher[1] was paid disability support pension totalling $49,963.36. Mr Fletcher accepts that his level of income at that time was such that disability support pension was not payable to him and that a debt in that amount was raised against him. On 28 November 2007 Mr Fletcher[2] became bankrupt when his debtor's petition was accepted. On 29 November 2010 Mr Fletcher was discharged from bankruptcy by operation of law.
2. There is no doubt that the sum of $49,963.36 was a debt provable in Mr Fletcher's bankruptcy. The issue I have to decide is whether, as Mr Fletcher contends, he was released from that debt on his discharge by virtue of s 153(1) of the Bankruptcy Act 1966 or whether, as the Secretary, Department of Families, Housing, Community Services and Indigenous Affairs contends, the debt was incurred "by means of fraud". In that event, and by virtue of s 153(2)(b) of that Act, Mr Fletcher was not released from the debt on his discharge from bankruptcy and, the aspect of the matter that particularly concerns Mr Fletcher, Centrelink, on behalf of the Secretary, is able to deduct modest amounts from the age pension payments made to Mr Fletcher.
3. The background to the matter is set out in the Secretary's Statement of Facts and Contentions. Mr Fletcher appeared, at the hearing, to accept the accuracy of the facts set out in it. He chose not to give any evidence to contradict them at the hearing, expressing the desire not to be cross-examined by Mr Hamilton on behalf of the Secretary. Despite that, in a document lodged with leave after the hearing, he asserted that he had not earned the amounts attributed to him by the Secretary and put forward explanations for the income said to have been received over those years. I am unable to give any weight to those assertions.
4. Mr Fletcher applied for disability support pension in September 1997. In connection with that application he completed various questionnaires about his assets and income. Those documents showed that he had no assets or income, indeed that he was bankrupt. Additionally, he denied involvement in any capacity in private companies. Mr Fletcher was paid disability support pension thereafter. He continued to receive disability support pension until April 2006 when his payment was cancelled. In November 1997, and again in March 1998, October 1998 and July 2005, Centrelink sent Mr Fletcher notices reminding him that he had to inform Centrelink of a variety of circumstances including, if he started paid work or any form of profession, trade, business or self-employment, if he started to receive any income, or if his assets exceeded a prescribed amount (eg $268,500.00 in March 1998). Mr Fletcher did not inform Centrelink of any change in his circumstances in the period between September 1997 and April 2006.
5. Mr Fletcher was leading a much more colourful life than his answers to Centrelink indicated. From at least October 1997 he was the controlling mind of a great number of companies that operated businesses known as Bellclub 100, Bellprogram, Bellbiz, the Pro Program, Money by the Minute, 1 Person Home Business, Regent Gold Mine and Mine Jobs Australia. An earlier Tribunal decision[3] described Mr Fletcher as a "self-described scammer". The material demonstrates that to be an accurate description. In 2005 and 2006 Centrelink undertook an investigation of Mr Fletcher's affairs. An analysis was undertaken of some 15 bank accounts that Mr Fletcher had operated between 1998 and 2005. The investigation concluded that in the years in issue here, Mr Fletcher had received, at least, the following income:
   • Year ended 30 June 2001 $4,100,249.00
   • Year ended 30 June 2002 $170,594.00
   • Year ended 30 June 2003 $445,252.00
   • Year ended 30 June 2004 $865,765.00
   • Year ended 30 June 2005 $184,020.00
   • Year ended 30 June 2006 $18,780.00
6. Mr Fletcher did not notify Centrelink of his involvement in the various companies he operated, nor of the businesses he was involved in, nor of his various bank accounts and, perhaps most importantly, he did not notify Centrelink of the very considerable income he received in the period in issue. Had Mr Fletcher done so he would not have received disability support pension.
7. Following the decision in April 2006 to cancel Mr Fletcher's disability support pension a further decision was made on 28 April 2006 to raise and recover an overpayment debt of $83,991.00 for all of the disability support pension paid to Mr Fletcher between October 1997 and March 2006. Then on 28 November 2007 Mr Fletcher became bankrupt. On 10 June 2008 the decision was varied and the overpayment debt reduced to $49,963.36.
8. During the period of Mr Fletcher's bankruptcy the debt was written off, that is, attempts to recover it were suspended. Mr Fletcher was granted age pension in March 2010. On 19 December 2012 Centrelink began recovering the debt by withholding $20 a fortnight from Mr Fletcher's age pension. Necessarily implicit, if not explicit, in that decision was a decision that the debt had been incurred by means of fraud and that Mr Fletcher had not been released from the debt on his discharge from bankruptcy. The decision was affirmed on internal review and by the Social Security Appeals Tribunal on 30 April 2013. Mr Fletcher now seeks a review of the decision in this Tribunal.
9. The scheme of the Bankruptcy Act is that, on bankruptcy, a creditor's rights in relation to debts (with some irrelevant exceptions) are converted into a right to prove in the bankruptcy. The effect of s 153(1) of the Act is that, ordinarily, on discharge from bankruptcy "the discharge operates to release him or her from all debts (including secured debts) provable in the bankruptcy...". That general proposition is subject to some exceptions including, relevantly, one in these terms:

(2) the discharge of a bankrupt from a bankruptcy does not:

...

(b) release the bankrupt from a debt incurred by means of fraud or a fraudulent breach of trust to which he or she was a party or a debt of which he or she has obtained forbearance by fraud;...

1. The question that arises is whether the debt here was incurred by means of fraud. What is meant by "fraud" is not defined in the Bankruptcy Act. It has generally been accepted in the Tribunal that fraud for these purposes requires a determination that the bankrupt, in incurring the debt, had acted with deliberate dishonesty to the prejudice of another person's propriety rights[4]. Reference is traditionally made to the classical formulation of Lord Herschell in Derry v Peek[5] that fraud is proved when it is shown,

... that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false.

1. The case for the Secretary was put on the footing that Mr Fletcher failed to inform Centrelink of his very considerable income. He received regular reminders of the need to disclose income to Centrelink. He received disability support pension throughout the period in issue here. In those circumstances, it was said, the only inference open to be drawn is that the failure was a knowing failure to inform Centrelink of his changed circumstances. As it seems to me that inference is certainly available to be drawn. And it may more readily be drawn where Mr Fletcher chose not to give any evidence or to suggest that there was some other explanation for the failure. Mr Fletcher cannot have been unaware of the need to inform Centrelink of the receipt of income. Absent some other explanation, I infer that he made a knowing decision not to do so and that the subsequent debt that arose was incurred by means of fraud.
2. Mr Fletcher also raises a contention that the deduction of $20 per fortnight causes him hardship. The decision to make that deduction is not the subject matter of this application. The decision under review is the decision to treat the debt of $49,963.36 as being still owed. That decision will be affirmed.

I certify that the preceding 12 (twelve) paragraphs are a true copy of the reasons for the decision herein of Deputy President P E Hack SC

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[3] [2010] AATA 349

[4] See eg Civitareale & Secretary, Department of Family and Community Services [1999] AATA 486; (1999) 57 ALD 451, at [97]; Fode & Secretary, Department of Families, Housing, Community Services and Indigenous Affairs [2011] AATA 543.

[5] [1889] UKHL 1; (1889) 14 App Cas 337 at 374.