Karabassis v Deputy Commissioner of Taxation

Federal Court of Australia|2011-05-04|Before: Varanet P, Ryan J

REASONS FOR JUDGMENT 1 This is an appeal from orders made by Reithmuller FM on 11 September 2009: Karabassis v Deputy Commissioner of Taxation [2009] FMCA 898. By those orders, the learned Federal Magistrate dismissed the appellant's application for review of a sequestration order made by a Registrar on 6 April 2009. The amended notice of appeal filed in this Court on 5 February 2010, relies on the following grounds: 1 I have asked for an adjournment of 3 months because I had a severe heart attack. I do have a health certificate that says I should rest for 3 to 6 months after my rehabilitation, especially in anything that will increase the risk of me having another heart attack. The Registrar is incorrect to say that I do not have any evidence to state I am unable to attend court in paragraph 3. 2 In paragraph 10, the Registrar says "Why this would not have been reflected in the tax returns lodged both on his behalf and Varanets, is no clear", which makes my dispute very clear, that the leasing expenses or any leasing expenses were not take into account at all in both my tax returns or Varanets tax returns. 3 In paragraph 11, the Registrar says, "the ATO rejected the applicant's case", the ATO wanted to see the payments I made, I did get a letter from the bank stating very clear that they cannot retrieve this information, but they did provide a letter saying that GEORGE KARABASSIS has paid off the full amount of the lease, which provides that I made the payments. The Registrar continues on paragraph 11 "it's not possible for the company to re-categorise the nature of the payment made". We do not re-categorise the nature of the payment, the leasing expenses were not taken into account at all. The Registrar in paragraph 11 says "on the evidence of the tax return ----------, were categorized as income and not reimbursements and therefore, the assessment remained", this is incorrect because in both years 2000-01/ 2001-02, no leasing expenses were taken into account. If the leasing expenses were taken into account I would have had losses of more than 1 million. 4 In paragraph 13, the Registrar says that "No such documents have been forthcoming", this is not correct, I have provided an INVOICE of the equipment, stating the $30,000 deposit, details of the repayment from the finance company and a letter from the bank saying I have paid off the full lease, these are all the documents needed. What other documents and anyone provide? I have all the documents. 5 In paragraph 14, the Registrar says "There is nothing to show that he rather than Varanet Pty Ltd actually paid the lease payments", I was the director of Varanet and I made the payments who else can make the payments? All documents show I was guarantor and the invoice shows the deposit of $30,000, all documents are very clear and from an accounting point of view all documents are very clear. On same paragraph 14, the Registrar says "There is not even a copy of the Varanet P/L ----- to show whether Varanet actually recorded making any lease payments", the letter of 2 pages from my accountant make this very clear that NO LEASING EQUIPMENTS was taken into account or any leasing expenses, yet the Registrar out of 2 pages he noticed that words "notoriously bad", which anyone can say this to justify their fees. 6 In paragraph 15, the Registrar says, the Tax judgment ----- has not produced documents of the nature one would expect to demonstrate his case, I have produced an INVOICE - letter from finance company - letter from the Bank and letter from accountant, these to me are nature one documents, what documents do I have to produce? 2 The appellant then seeks orders that the orders of the Federal Magistrates Court be set aside, the sequestration order be set aside, the Deputy Commissioner's creditor's petition be adjourned to a date to be fixed being a date after the determination of this appeal, and his costs before this Court and before the Federal Magistrates Court be paid by the Deputy Commissioner. 3 Before examining the appeal, it is convenient to set out in summary the facts which have given rise to it.

Background 4 On 4 December 2006, the respondent to this appeal, a Deputy Commissioner of Taxation ("the Deputy Commissioner"), obtained a default judgment in the Magistrates Court of Victoria against the appellant, Mr Karabassis, in the sum of $37,718.04, as well as interest of $1,587.25. The judgment debt was for unpaid income tax for the years ended 30 June 2001 and 30 June 2002, and costs. 5 On 5 December 2007, the Deputy Commissioner filed a creditor's petition, MLG 1657 of 2007, in the Federal Magistrates Court. The hearing of that petition was adjourned on several occasions, for various reasons, including extending to the debtor an opportunity to allow him to lodge amended returns and to appeal to the Administrative Appeals Tribunal ("the AAT") against the resultant assessments. The hearing of the creditor's petition ultimately took place in the Federal Magistrates Court before Registrar Moore on 6 April 2009. There, in the appellant's absence, the Registrar made a sequestration order against his estate, and ordered that he pay the Deputy Commissioner's costs of and incidental to the petition, fixed in the sum of $868.30. 6 On 27 April 2009, the appellant filed an application for review of the Registrar's sequestration order, and sought an order that: "The hearing be adjourned to a date after the decision from the Administrative Appeal Tribunal be announced" The AAT decision there referred to was apparently in relation to the appellant's appeal to the AAT from the disallowance of his objection against an assessment issued by the Deputy Commissioner in the light of the amended tax returns. 7 On 3 August 2009, the appellant's application for review of the Registrar's orders was heard by Reithmuller FM. Again, the appellant did not appear but he sent a facsimile message to the Court on the day of the hearing explaining his health problems and seeking an adjournment for three months. The learned Federal Magistrate, however, proceeded in his absence on the basis that "there [was] no medical evidence to state that he [was] unable to attend at the court or participate in the review of the Registrar's decision". On 21 August 2009, his Honour delivered his reasons for dismissing the application for review.

The Federal Magistrate's reasons 8 The reasons published by Reithmuller FM contain the following outline of the circumstances in which the judgment debt was incurred; 8. It appears that the applicant was involved in a business venture relating to the sale of Apple computer products. For the purposes of this venture the applicant operated a company, Varnet Pty Ltd. In his 2000/2001 tax return the applicant showed an income of $58,000 described as an allowance and $24,490 described as salary and wages. This is a total of $82,490. He has stated that this money was paid to him by Varnet Pty Ltd. The tax return of Varnet Pty Ltd for the 2000/2001 financial year shows that it paid salary and wage expenses of $82,490. In addition, the company made loans to shareholders and their associates of $46,250. 9 The business subsequently failed and the applicant disputes his tax debts arising out of the income recorded in his tax return that came from Varnet Pty Ltd. 10 The applicant says that a number of items of equipment were leased for the purposes of the business and that he made the lease payments. The documents that he produces indicate that the leases were taken out by Varnet Pty Ltd. The crux of his case seems to be that the payments by Varnet Pty Ltd were reimbursements for the payments that he made to the leasing companies on behalf of Varnet Pty Ltd. Why this would not have been reflected in the tax returns lodged both on his behalf and Varnet's is not clear, although he provided a letter from his accountant which described his record-keeping as "notoriously bad." 9 The learned Federal Magistrate then proceeded to consider whether, in the circumstances, there was any serious dispute as to the debt, and, if so, whether the sequestration order made by the Registrar ought be set aside. His Honour noted that, before the Deputy Commissioner's decision on the appellant's objection to the taxation assessments, the Australian Taxation Office ("the ATO") had written to the debtor requesting copies of statements showing repayments made to a financier and documents showing reimbursements from Varnet Pty Ltd ("Varnet"). His Honour continued; These documents would ordinarily be expected to be available and demonstrate whether or not the payments were made as described by the applicant. In the objection decision the ATO rejected the applicant's case and also noted that once a payment has been made by a company with a particular categorisation it is not possible for the company to re-categorise the nature of the payment made. On the evidence of the tax returns lodged the payments were categorised as income and not reimbursements and, therefore, the tax assessment remained. 10 The learned Federal Magistrate then pointed out that there had been a further request for documents of that type when the appellant lodged his appeal to the AAT, and that there had been a "straightforward" letter from the AAT giving examples of documents which might support his objection. As his Honour noted, no documents were forthcoming. Nevertheless, as is further noted in the reasons at first instance; The applicant has produced a small number of documents, however, they do not demonstrate the nature of the payments as alleged by him. The material that is produced is the tax returns showing that payments were made to him by Varnet Pty Ltd as an allowance, and the documents produced by the applicant to show that the leasing debts were in the name of Varnet Pty Ltd. There is nothing to show that he, rather than Varnet Pty Ltd actually paid the lease payments, nor that the payments from Varnet Pty Ltd were meant to be reimbursements. There is not even a copy of the Varnet Pty Ltd Profit and Loss Statement and Balance Sheet for the relevant year to show whether Varnet Pty Ltd actually recorded making any lease payments. On the material available it appears to me that the applicant has no prospects of success in his proceedings in the Administrative Appeals Tribunal. 11 As the case stood before him, then, the Federal Magistrate was not persuaded that there was a serious dispute as to the existence of the debt of a kind which would entitle the appellant to the relief which he sought. Thus it is observed, at [16] of the reasons of the Federal Magistrates Court; On the material before me I am persuaded that the debt is owing, and that there is no defence or counter-claim. There is no issue in this case as to the debtor's insolvency, nor any of the other matters necessary to be proved for a sequestration order. The Registrar made appropriate orders and those orders ought not be altered.

The nature of the appeal 12 In essence, the reasons of the learned Federal Magistrate explain two separate decisions. The first was a decision not to adjourn the proceeding before him, which was an interlocutory decision (see Farrington v Deputy Commissioner of Taxation (2002) 50 ATR 429 at 435 [24]-[25] ("Farrington") and Marketing Advisory Services v Football Tasmania Ltd [2002] FCAFC 165; 42 ACSR 128) from which leave to appeal to this Court is required: Federal Court Act of Australia Act 1976 (Cth) ("the Federal Court Act"), s 24(1A). The second was a decision to dismiss the appellant's application for review of the Registrar's sequestration order. That decision, I consider, was final in nature, as it flowed from his consideration of the merits of the case, and it finally concluded, so far as that Court was concerned, the controversy between the parties. In that case, an appeal lies, as of right to this Court: the Federal Court Act, s 24(1)(d).

Leave to appeal from the Federal Magistrate's refusal of an adjournment. 13 Applying the well-known test governing the grant of leave to appeal from an interlocutory decision set out by a Full Court of this Court in Décor Corp Pty Ltd v Dart Industries (1991) 33 FCR 397, at 399-400 - namely whether, first, the interlocutory decision complained of is attended by sufficient doubt to warrant its reconsideration on appeal and, secondly, whether substantial injustice would flow from it, assuming it to be wrong, I am not persuaded that there should be a grant of leave. In any event, the appellant has made no application for leave to appeal from the refusal of the adjournment, so it is unnecessary to give further consideration to that issue.

The appeal from the refusal to review the sequestration order 14 As already noted, the jurisdiction of this Court to entertain an appeal from a final decision of the Federal Magistrates Court is conferred by s 24(1)(d) of the Federal Court Act. As Marshall J has pointed out in Low v Commonwealth of Australia [2001] FCA 702, at [3], the appeal provided for in the present circumstances is of an intermediate kind; it is neither an appeal de novo (like the review by a Federal Magistrate of a Registrar's decision) nor an appeal stricto sensu. It is an appeal, rather, by way of rehearing. Thus, the powers of this Court, as Kenny J said in Farrington, (supra), at [4]; are exercisable only if the appellant can demonstrate that, having regard to the evidence before the appellate court, the judgment under appeal is a consequence of some legal, factual, or discretionary error: see Allesch v Maunz (2000) 173 ALR 648 at 653-54 per Gaudron, McHugh, Gummow and Hayne JJ; Minister for Immigration and Multicultural and Indigenous Affairs v Jia (2001) 178 ALR 421 at 439 per Gleeson CJ and Gummow J; and Coal & Allied Operations Pty Ltd v Australian Industrial Relations Commission (2000) 174 ALR 585 at 590 per Gleeson CJ, Gaudron and Hayne JJ. 15 In the passage from Allesch v Maunz (2000) 203 CLR 172 at 180, it is observed, (omitting footnotes); the critical difference between an appeal by way of rehearing and a hearing de novo is that, in the former case, the powers of the appellate court are exercisable only where the appellant can demonstrate that, having regard to all the evidence now before the appellate court, the order that is the subject of the appeal is the result of some legal, factual or discretionary error, whereas, in the latter case, those powers may be exercised regardless of error. At least that is so unless, in the case of an appeal by way of rehearing, there is some statutory provision which indicates that the powers may be exercised whether or not there was error at first instance. And the critical distinction, for present purposes, between an appeal by way of rehearing and an appeal in the strict sense is that, unless the matter is remitted for rehearing, a court hearing an appeal in the strict sense can only give the decision which should have been given at first instance whereas, on an appeal by way of rehearing, an appellate court can substitute its own decision based on the facts and the law as they then stand. 16 The "legal, factual or discretionary" errors on which the appellant relies in his written submissions in the present case are said to arise from a misapplication of s 52(2)(b) of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"), which provides that a court may dismiss a creditors' petition if it is satisfied by the debtor: (b) that for other sufficient cause a sequestration order ought not be made. After noting that the judgment debt on which the petition is founded was based on a default judgment of the Magistrates' Court of Victoria, the appellant referred to several authorities on the inconclusive nature of such a default judgment and the circumstances under which a court will "go behind" a judgment of that kind. 17 In relation to the judgment in the Victorian Magistrates Court having been obtained in default of appearance by the appellant, I was referred to Sundberg J's reasons in Miles v Shell Company of Australia (1998) 156 ALR 133, where his Honour said, at 136; When a court exercising bankruptcy jurisdiction is invited to go behind a judgment, the first question is whether it should accept the invitation. The court does not as a matter of course go behind a judgment simply because it is asked to do so. The case an applicant must make out before the court will intervene depends on the circumstances, in particular those in which the judgment came to be entered. When the judgment followed a full investigation at trial in which both parties participated, the court will not reopen the matter unless a prima facie case of fraud or collusion or miscarriage of justice is made out. Where judgment has been entered in pursuance of a compromise, ground must be shown for challenging the compromise as such before the judgment will be reopened. In the case of a default judgment, the court will always go behind it if there is what it regards as a bona fide allegation that no real debt lay behind the judgment. Whether the judgment is to be reopened will often involve some preliminary investigation of the merits of the attack on it. But when the court decides that it will go behind the judgment, the question is whether there was in fact and in law a debt which could legally found the judgment. (emphasis added). 18 That approach to the examination of a default judgment said to found a creditor's petition was claimed to have a particular attraction in the light of the observation of Barwick CJ (with whom Windeyer and Owen JJ agreed) in Wren v Mahony (1972) 126 CLR 212, at 224, that "where reason is shown for questioning whether behind the judgment … there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as … satisfactory proof". On that basis, it was submitted that the appellant's contention, that the money which he had received from Varnet was a reimbursement of lease payments made on its behalf and not income as assessed by the Deputy Commissioner, was, in the terms used by Sundberg J, a "bona fide allegation" that no debt underlay the default judgment and that the Registrar and the Federal Magistrates Court should have gone behind it.

The debtor's written submissions in this Court 19 At the outset of these submissions, which were prepared by Counsel in discharge of a reference under O 80 r 4 of the Rules of this Court, it was asserted, correctly, that this is an appeal by way of rehearing; see Minister for Immigration and Multicultural Affairs v Jia Legeng (2001) 205 CLR 507 and George v Deputy Commissioner of Taxation (2004) 212 ALR 495, where, Stone J said, at 497-8, that; [11] Section 24(1)(d) of the Federal Court Act extends the appellate jurisdiction of this court to judgments of the Federal Magistrates Court. As indicated in [1] above, s 25(1A) of the Federal Court Act provides that, at the direction of the Chief Justice, a single judge may exercise the court's appellate jurisdiction in such an appeal, but otherwise the Federal Court Act makes no distinction between an appeal from the Federal Magistrates Court and an appeal from a judge of this court. It is well settled that an appeal from a single judge of this court to a Full Court is an appeal by way of rehearing: Minister for Immigration and Multicultural Affairs v Jia Legeng (2001) 205 CLR 507 at 533 ; 178 ALR 421 at 439 ; 65 ALD 1 at 19 (Jia). It follows that an appeal from a Federal Magistrate is also an appeal by way of rehearing: Low v Commonwealth [2001] FCA 702; BC200103022 at [3]; WAJR v Minister for Immigration and Multicultural and Indigenous Affairs (2004) 204 ALR 624 at 628. [12] On an appeal by way of rehearing the appellate court may draw inferences of fact from the evidence before the primary judge and has a discretion to allow the parties to adduce additional evidence: CDJ v VAJ (1998) 197 CLR 172 at 199, 201-2; 157 ALR 686 at 707-8, 710 per McHugh, Gummow and Callinan JJ. In Allesch v Maunz (2000) 203 CLR 172 at 180-1; 173 ALR 648 at 653-4, the majority of the High Court (Gaudron, McHugh, Gummow and Hayne JJ) held that in an appeal by way of rehearing: … the powers of the appellate court are exercisable only where the appellant can demonstrate that, having regard to all the evidence now before the appellate court, the order that is the subject of the appeal is the result of some legal, factual or discretionary error but, where such an error is established, the appellate court: … can substitute its own decision based on the facts and the law as they then stand. 20 Having identified the task confronting the appellant as being the identification of some legal, factual or discretionary error in the Federal Magistrate's judgment, the written submissions moved to the primary contention that the Federal Magistrate ought to have "gone behind" the default judgment entered by the Victorian Magistrates Court so as to discover, it was contended, a "sufficient cause" not to make the sequestration order within the meaning of s 52(2)(b) of the Bankruptcy Act, i.e. that the debtor was not, in truth, indebted to the Deputy Commissioner for the amount of the judgment. 21 Two factors were said to warrant a favourable exercise of the Federal Magistrate's discretion to "go behind" the judgment of the Victorian Magistrates Court: first, that the judgment had been obtained by default, and in the absence of the debtor; secondly, that there was, in effect, an "appeal" from it on foot, in the form of the debtor's application in the AAT for a review of the Deputy Commissioner's rejection of the objections to the assessments. 22 In support of the second limb of the appellant's contention, in relation to the "appeal" to the AAT said to be on foot from the assessment in the 2001 income year, I was referred to Ahern v Deputy Commissioner of Taxation (Qld) (1987) 76 ALR 137 ("Ahern"), where a Full Court of this Court (Davies, Lockhart and Neaves JJ) said, at 148, that; It is also well established that in general a court exercising jurisdiction in bankruptcy should not proceed to sequestrate the estate of a debtor where an appeal is pending against the judgment relied on as the foundation of the bankruptcy proceedings provided that the appeal is based on genuine and arguable grounds: Re Rhodes; Ex parte Heyworth (1884) 14 QBD 49 Bayne v Baillieu (1907) 5 CLR 64 and Re Verma; Ex parte DCT (1985) 4 FCR 181. These cases rest on the broad principle that before a person can be made bankrupt the court must be satisfied that the debt on which the petitioning creditor relies is due by the debtor and that if any genuine dispute exists as to the liability of the debtor to the petitioning creditor it ought to be investigated before he is made bankrupt. Bankruptcy is not mere inter partes litigation. It involves change of status and has quasi-penal consequences. 23 The application to the AAT, it was submitted, was "in practical effect an appeal from the judgment [of the Victorian Magistrate's Court] … [which] has merit and is based on genuine and arguable grounds", and, as it was on foot when the creditor's petition came on for hearing, the Registrar, or the Federal Magistrates Court should have adjourned the hearing of the petition until after the AAT proceedings had been determined.

The Deputy Commissioner's submissions in this Court 24 Ms Button of Counsel, who appeared before me for the Deputy Commissioner, first submitted that the appellant's written outline "mischaracterised the issue for determination by this Court", in that the question was not, she submitted, whether the sequestration order ought to have been made, but whether the learned Federal Magistrate had been wrong - in the sense of his decision having been attended by legal, factual or discretionary error - to conclude that there was a debt and that the AAT application had no prospects of success. 25 The real question, Ms Button said, was whether the learned Federal Magistrate's decision to dismiss the debtor's application for review of the sequestration order was correct, not whether the sequestration order itself had been correctly made. Ms Button then submitted that; The Federal Magistrate's decision is not the result of any factual, legal or discretionary error. It is clear that: (a) the Federal Magistrate did "go behind the judgment" and examined the evidence put forward by the Appellant as demonstrating that the sum of $58,000 was incorrectly treated as an allowance where it was in truth a repayment of a loan; (b) the Federal Magistrate found that (Reasons, paras 14, 16): (i) the Appellant had not produced documents demonstrating the nature of the payments as alleged by him; (ii) "[t]here is nothing [in the documents] to show that he, rather than Varnet Pty Ltd actually paid the lease payments, nor that the payments from Varnet Pty Ltd were meant to be reimbursements"; and (iii) "the debt is owing"; (c) having also observed that the Appellant had not even produced Varnet's profit and loss accounts (which might be expected to show lease payments), the Federal Magistrate expressly considered the Appellant's AAT application had "no prospects" of success; (d) nothing in the Appellant's submissions seeks to demonstrate error in the Federal Magistrate's central findings at paragraphs 14-16 of his reasons. 26 Support for the conclusion reached by the learned Federal Magistrate was said by Ms Button to derive from the fact that, as she submitted, there is no "source document" or other evidence to support the contention that the disputed amount of $58,000, which had been recorded as an allowance made to the appellant by Varnet had, in fact, been paid by way of reimbursement of a loan. Thus, it was said, his Honour did not err in concluding that the appellant's application to the AAT had no prospects of success and that he was, in fact, indebted to the Commissioner in the amount of the judgment debt. 27 Ms Button relied on Farrington (supra) where, relevantly for present purposes, Kenny J said, at [45]; Mr Farrington did not persuade the Federal Magistrate that the sequestration order sought by the Commissioner ought not be made: see Bankruptcy Act, s 52(2). Plainly enough, his Honour would have taken into account the AAT proceeding and the nature of the dispute concerning the assessments between Mr Farrington and the Commissioner. His Honour can be taken to have been aware that, if a sequestration order were made, then the application for review in the AAT might not continue any further. Bearing in mind the view his Honour took of the dispute between Mr Farrington and the Commissioner, it may be readily understood why this consideration did not deter his Honour from making the sequestration order. 28 That passage, I consider, can be paraphrased to apply with some force to the circumstances of the present case. It is clear that determination of an application to set aside a sequestration order involves an exercise of judicial discretion of the type identified by Dixon, Evatt and McTiernan JJ in House v The King (1936) 55 CLR 499, at 504-5 (see Ahern, at 146-7 and Farrington, at 436. 29 The arguments which have been advanced on behalf of the appellant raised matters of fact which had to be evaluated by the learned Federal Magistrate in the exercise of the discretion conferred by s 52(2) of the Bankruptcy Act. Not all of those arguments were put at first instance in the same terms, or with the same evidentiary support, as they have been on the hearing of the present appeal. However, as indicated at the outset of these reasons, this appeal is by way of re-hearing and it is therefore not enough that I be satisfied merely that the learned Federal Magistrate's discretion did not miscarry. Rather, it is necessary to review the evidence and arguments presented to his Honour and to have regard to the further evidence which the appellant has sought to adduce in support of the appeal. 30 The appellant contended in support of the appeal that Varnet had no sources of income of its own and that "every cent" it had spent in paying its expenses, including payments under leases of equipment, had come from the appellant himself. That feature of Varnet's existence and method of operation was invoked to explain the absence of documentary records of advances from the appellant to Varnet and the failure to distinguish, in the accounts of that company, between loans made to it by the appellant and contributions in other forms such as a further injection of equity capital. The appellant also relied on his dealings with another company, Apple Communications, which had been the sub-lessee of network equipment leased in the name of Varnet. The appellant claimed that he had demonstrably made very large loans to Apple Communications without the formality of written loan agreements. 31 The sum of $58,000 noted by the learned Federal Magistrate at [8] of his reasons quoted at [8] above, was claimed by the appellant to have been repaid in cash or by cheque by Apple Communications directly to the appellant but recorded as income in the books of Varnet. The same amount had been shown in the accounts of Varnet and in the personal tax return of the appellant as director's fees paid to the appellant. Those accounts and the appellant's personal tax returns had been prepared by the same accountant, David Harrison of Elite Accounting Co. Mr Harrison was not called as a witness, either in the Federal Magistrates Court or on the hearing of this appeal. However, a letter from Mr Harrison dated 13 August 2009, which was in evidence in the Court below, recited; We previously acted as accountants for Mr. George Karabassis and the company Varanet Pty Limited of which he was the sole director and shareholder. Mr. Karabassis has asked that our firm provide a statement outlining the facts to the best of our knowledge in respect of the matter. Based on discussions with Mr. Karabassis he is of the view that anomalies may have been contained in taxation returns lodged for the 2001 taxation year on his behalf which resulted in his income being overstated and as such resulting in an incorrect assessment being raised. Mr. Karabassis is of the opinion that the source entries processed to the company's account which were capital in nature have been treated incorrectly, resulting in the income of the company being overstated. The company then incorrectly treated payments to Mr. Karabassis as a director's fee resulting in a personal assessment being raised. In particular Mr. Karabassis has raised concern about whether any capital items or equipment under finance was accounted for in the financial period, in this regard we can confirm from our records that the only finance accounted for in the accounts of the company was for a motor vehicle purchased under finance. Any finance for other equipment be it under a CHP, operating or finance lease was not reflected in the company's accounts. It is Mr. Karabassis assertion that the company should have included such costs in the financial period which would have resulted in a non taxable outcome. Whilst we acknowledge this view we can not assist further as we no longer have any source records on file. However we can state that this situation is quite plausible given Mr. Karabassis was notoriously poor in respect of his record keeping and providing of source documents. If this was the case then the company would not have declared a director's fee and Mr. Karabassis would not have had an assessment raised. This information has been provided based on my recollections to the best of my ability in light of the fact in pertains to matters some eight (8) or so years ago.

Further evidence from the appellant 32 The appellant filed two affidavits made by himself on 2 June 2001. The first of these affidavits (the "first further affidavit") exhibited documents lodged in support of his application to the AAT for review under s 37 of the Administrative Appeals Tribunal Act 1975 (Cth) of the disallowance of his objections to the assessment. The second of these affidavits (the "second further affidavit") exhibited bank statements to which the appellant had referred in the first further affidavit but which had not been exhibited to that affidavit. 33 Many of the documents exhibited to the first further affidavit were already in evidence in one form or another before the first further affidavit was sworn and therefore had been considered by the learned Federal Magistrate. The only additional documents exhibited to the first further affidavit which had not already been in evidence were a copy of the appellant's 2001 tax return, a copy of the 2001 notice of assessment, and a letter from the appellant to the ATO in 2008 seeking to amend his 2001 return. The first further affidavit does not furnish any new documentary evidence to support the appellant's contention that payments made to him by Varnet were reimbursements for lease repayments made by him on the company's behalf. Nor does it contain anything to suggest that, had the learned Federal Magistrate had the benefit of the additional information, he would have reached a conclusion different from that explained in his reasons of 21 August 2009. 34 Of the bank statements exhibited to the second further affidavit, only one refers to the taxation year in which the disputed income was allegedly received. That statement provides transaction records for a home loan account held at Westpac Bank from 24 July 2000 to 24 October 2000. The appellant made particular reference to a withdrawal on 19 October of $99,682.31, which, he claimed, had been made for "business purposes". There was no evidence of the specific purpose for which that withdrawal was made or that it provided the source of a payment by the appellant of lease instalments which were later reimbursed to him by Varnet.

Submissions on behalf of the Deputy Commissioner 35 Ms Button, of Counsel for the Deputy Commissioner, pointed out that the controversy in respect of the sum of $82,490 was confined to the appellant's liability in respect of the 2001 tax year. She also referred to evidence that some small amounts had been paid by the appellant between December 2003 and August 2006 in reduction of his liability under the tax assessment for 2001. An indication was given in correspondence during that time that the appellant hoped to discharge the liability in full from the proceeds of the settlement of a property which he had sold. Moreover, during the course of those negotiations, the appellant had lodged with the ATO an amended tax return in which he changed the amount returned as income from $82,490 to $24,490, claiming that the sum of $58,000 originally returned as an "allowance" had, in fact, been received by way of repayment of a loan. Thus, even if the learned Federal Magistrate had accepted that the amount of the appellant's liability to the Deputy Commissioner had been overstated, there would, in the light of that amended return have still been, in truth and reality, a debt of $24,490.

Consideration 36 In the light of the additional evidence which has been put before this Court by way of supplementing that considered by the learned Federal Magistrate, I have been unable to discern any error by his Honour in declining to set aside the sequestration order. The reasons of the Federal Magistrates Court, especially those set out at [8]-[11] above, demonstrate that his Honour did, in fact, "go behind" the judgment of the Victorian Magistrates Court on which the debt claimed by the Deputy Commissioner was founded. In the course of doing so, he concluded, correctly in my view, that the appellant's pending application to the AAT for review of the Deputy Commissioner's disallowance of his objection to the 2001 assessment had no prospect of success. An additional reason for that conclusion is that, by force of s 14ZZK of the Taxation Administration Act 1953 (Cth), on an application for review by the AAT of a reviewable objection decision, a taxpayer had the burden of proving that the assessment was excessive. I do not consider that any of the evidence recounted above, either individually or collectively, came close to discharging that onus which the legislature imposed on the appellant. 37 In the second place, even if the appellant could have persuaded the AAT or the Victorian Magistrates Court that the Deputy Commissioner's assessment should not have included the amount of $58,000 claimed to have been wrongly characterised as "Director's fees", that would still have left the appellant with an assessable income of $24,490 for the 2001 tax year. That would not have diminished the foundation debt below the minimum of $2,000 which, as at September 2009, was prescribed by s 44(1) of the Bankruptcy Act as a prerequisite for the presentation of a creditor's petition.

Conclusion 38 It follows from the reasons outlined above that the appeal must be dismissed. I shall order that the Deputy Commissioner's costs of the appeal be treated in the administration of the appellant's bankrupt estate as part of the petitioning creditor's costs. I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Ryan.

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