Inspector-General In Bankruptcy v Robert Leslie Nelson

(1998) 86 FCR 67
(1998) 168 ALR 340
(1998) 27 AAR 231

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(Judgment by: Wilcox, Lindgren and R D Nicholson JJ)

INSPECTOR-GENERAL IN BANKRUPTCY, APPLICANT
ROBERT LESLIE NELSON, RESPONDENT

Court:

Judge: Wilcox, Lindgren and R D Nicholson JJ

Subject References:
BANKRUPTCY
Discharge
objection by trustee to discharge by operation of law
trustee's discretion to object
whether existence of permissible ground for objection gives rise to a prima facie right to object
requirement that trustee state reasons for objecting in notice of objection
bankrupt blamelessly overseas from before making of sequestration order to date
no request by trustee that bankrupt return to Australia
bankrupt involved in negotiating complex company and trust arrangements overseas
bankrupt living at prestigious London address and enjoying expensive life style
bankrupt's evidence that he has no legal or beneficial interest in the residence or in any of the companies or trusts and that his expensive life style is funded by others
costly investigation of bankrupt's affairs by trustee, including lengthy examination of bankrupt in London in 1990
no pursuit of investigation since then
trustee's objection to discharge in hope of extracting more substantial offer from bankrupt to contribute to bankrupt estate
no evidence that such offer likely to be forthcoming
no suggestion by trustee of any particular further investigatory or other step he would wish to take
impermissible reason of penalising bankrupt

Legislative References:
Bankruptcy Act 1966 (Cth) - ss 149; 149B; 149C; 149D; 149M; 149N; 149Q

Case References:
Totterdell v Nelson - (1990) 26 FCR 523

Hearing date: 26 March 1998
Judgment date: 12 JUNE 1998

Perth

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Judgment by:
Wilcox, Lindgren and R D Nicholson JJ

REASONS FOR JUDGMENT

THE COURT :

INTRODUCTION

The appellant ("the Inspector-General") appeals from a decision of the Administrative Appeals Tribunal ("the AAT") given on 15 August 1997 by which the AAT set aside a decision of the Inspector-General and directed him to cancel an objection of the trustee of the bankrupt estate of the applicant ("Mr Nelson") to the discharge of Mr Nelson from bankruptcy.

BACKGROUND

We take the following account of the background facts from the AAT's Reasons for Decision.

In the late 1970s and 1980, Mr Nelson, who then practised as a solicitor in Perth, provided services to a range of clients in what has been colloquially referred to as the "tax avoidance industry". There was no suggestion before the AAT that what he did was illegal. In 1982, the Deputy Commissioner of Taxation ("the DCT") issued assessments to him (and to several entities under his control) pursuant to s 167 of the Income Tax Assessment Act 1936. The assessments required Mr Nelson to pay income tax of around $2,500,000.

This debt and those owed by him to other creditors caused Mr Nelson to think that he was insolvent. He sought relief under Part X of the Bankruptcy Act 1966 ("the Act"). He signed an authority in favour of Mr P Melsom as controlling trustee and meetings of his creditors were held.

Mr Nelson lodged objections against the assessments of income tax but this did not affect his liability to pay the amounts assessed. Eventually, the objections were referred to the AAT for review.

Meanwhile, with Mr Melsom's consent, Mr Nelson sought work overseas (apparently in Singapore) and commuted to Perth where his family continued to reside. His last visit to Perth was in September 1984. In late 1984, Mr Nelson established himself in England, with the prior consent of Mr Melsom. He began living there with a person named Ms Coral Chantry (his marriage had broken down).

Mr Nelson cooperated in an extensive investigation into his affairs by the Australian Taxation Office ("ATO"). Negotiations between him and the ATO proceeded to the point where there was a possibility of a settlement by payment of the tax by instalments over a four year period. Compromise offers were put to meetings of creditors. They were not accepted on the sole dissenting vote of the ATO, which was owed about 75 per cent of the total amount owed giving it, in effect, a power of veto.

In April 1985, the DCT filed a creditor's petition. A sequestration order was made on 27 May 1985. Mr G Totterdell ("the Trustee") was appointed trustee in bankruptcy.

The bankruptcy proceeding was begun and the sequestration order made when Mr Nelson was resident outside Australia. He has not returned to Australia since September 1984.

While Mr Nelson was a bankrupt, his income tax objections came before the AAT but were dismissed by consent of the Trustee and the ATO.

The ATO was, in substance, the sole source of the funding of investigation by the Trustee into Mr Nelson's affairs and into his capacity to contribute to his bankrupt estate.

At the relevant time, subs 149 (1) of the Act provided that by force of s 149, a person who became a bankrupt was discharged from bankruptcy upon the expiration of three years from the date of the bankruptcy. That expiration was to occur on 27 May 1988. But subs 149 (3) (c) provided that a bankrupt was not discharged by virtue of s 149 if, relevantly, the trustee entered an objection. Subsection 149 (4) provided that an objection was not to be entered under s 149 (3) (c) except on one or more of four specified grounds (we set them out later in our summary of the Inspector-General's submissions). Subsection 149 (7) provided, relevantly, that an objection entered under s 149 (3) (c) lapsed at the expiration of the period of five years from the date of the bankruptcy. The Trustee lodged an objection on 17 March 1987 which was therefore due to lapse on 27 May 1990. Subsection 149 (9) provided that the Court might, on application by a bankrupt, order that the period for the lapsing of an objection be a period of less than five years (but exceeding three years). Mr Nelson did not apply for such an order, apparently being content to rely on the statutory lapsing on 27 May 1990. But he was to be disappointed.

Subsections 149 (12) and (13) as they then existed, were as follows:

" 12. The Court may, at any time before the discharge of a bankrupt, on the application of the Registrar, the Inspector-General, the trustee or a creditor, direct that the bankrupt shall not be discharged from bankruptcy by virtue of this section .

13. In deciding whether to make an order under subsection (12, the Court shall take into account such matters (if any) as are prescribed for the purposes of this subsection ."

By Bankruptcy Regulation 51A, a list of matters was prescribed for the purposes of subs 149 (13). The list was as follows:

"(a)

whether the bankrupt is able, or is likely within 5 years from the date of the bankruptcy to be able, to make a significant contribution to his estate ;

(b)

whether the discharge of the bankrupt would prejudice the administration of his estate ;

(c)

whether the bankrupt has co-operated in the administration of his estate ;

(d)

the conduct of the bankrupt, in respect of the period both before and after the date of the bankruptcy ;

(e)

any matters arising out of the conduct of the bankrupt as a bankrupt, being matters that are the subject of an investigation that is not completed ;

(f)

the age and state of health of the bankrupt ;

(g)

any evidence adduced by the bankrupt, the Inspector-General, the trustee, the Official Receiver or a creditor relating to -

(i)

the circumstances in which the debts of the bankrupt were incurred, including the bankrupt's experience in, and understanding of, financial matters and of the obligations imposed on the bankrupt as a result of incurring the debts; and

(ii)

the conduct of the bankrupt's creditors, including the nature and extent of any inquiries made by the creditors into the bankrupt's ability to pay his debts and whether the bankrupt was induced to incur debts by conduct on the part of the creditors that departed from the standards of normal and reasonable commercial practice ."

On 7 May 1990, the Trustee applied to this Court for an order pursuant to s 149 (12). It will be noted that the Trustee made this application only twenty days before the date on which the five year period was due to expire. On 25 May 1990, two days before that expiration, the application was dismissed. The Trustee appealed. On 6 November 1990, a Full Court allowed the appeal, set aside the order of the trial Judge, and directed that Mr Nelson not be discharged by virtue of s 149 of the Act: Totterdell v Nelson (1990) 26 FCR 523 (FC). A consequence of the Full Court's order was that Mr Nelson would be discharged from bankruptcy only by an order for discharge made by the Court under s 150 of the Act, if Mr Nelson were ever to apply under that section for such an order.

Section 27 of the Bankruptcy Amendment Act 1991 (Act No 9 of 1992) repealed s 149 and substituted a new legislative regime governing discharge from bankruptcy. The amendments commenced on 1 July 1992. Subsection 54 (2) of the amending Act provided that any order in force under subs 149 (12) immediately before the repeal of s 149, lapsed upon that repeal. Relevantly, a new subs 149 (2) provided that if a bankrupt had become a bankrupt prior to the commencement of the amending provisions and immediately before that commencement an order under subs 149 (12) had been in force in relation to the bankrupt, the bankrupt was to be discharged at the end of a period of three years from either the date on which the bankrupt filed his or her statement of affairs or the date of commencement of s 27, whichever should be the later. In Mr Nelson's case, the date of commencement of s 27 of the amending Act was the later date. Accordingly, Mr Nelson was to be discharged from bankruptcy on 1 July 1995, by the operation of s 149 (2). However, a new s 149B provided that, inter alia , a trustee in bankruptcy might file with the Registrar a written notice of objection to the discharge. The Trustee did so on 28 June 1995. It is this notice of objection which has given rise to the current proceeding. Before dealing with subsequent events, it is convenient to refer further to the legislation.

The provisions dealing with discharge by operation of law and objections to discharge as introduced by s 27 of the Bankruptcy Amendment Act 1991 were more elaborate than their predecessors. Section 149C provided that a notice of objection must set out the ground or each of the grounds of objection, being a ground or grounds set out in subs 149D (1); refer to the evidence or other material that, in the opinion of the trustee, established that ground or each of those grounds; and state the trustee's reasons for objecting. Subsection 149D (1) set out fourteen permissible grounds of objection. Of these, the first, described in par 149D (1) (a), was:

"(a) the bankrupt has, whether before, on or after the date of the bankruptcy, left Australia and has not returned to Australia : ..."

The notice of objection lodged by the Trustee on 28 June 1995 set out six grounds of objection, but subsequently, as he was entitled to do under s 149H of the Act, the Trustee gave notice that he no longer objected on the other five grounds. The part of the Trustee's notice of objection relating to the surviving ground was as follows:

" BANKRUPTCY ACT 1966

NOTICE OF OBJECTION TO DISCHARGE

Bankruptcy District of the State of Western Australia

No: 245 of 1985

Re: Robert Leslie Nelson

I, Geoffrey Frank Totterdell Trustee, of c/- Price Waterhouse, 8th Floor, 256 St George's Terrace, Perth hereby object to the discharge of Robert Leslie Nelson, Solicitor, formerly of 19 Warragoon Crescent, Attadale now of 1 Thurloe Close, South Kensington London SW7 2SE from bankruptcy by force of Section 149B of the Bankruptcy Act 1966 .

Relying on section 149D of the Bankruptcy Act the grounds of my appeal are as follows :

SECTION 149D(1)(a )

GROUNDS OF OBJECTION :

The bankrupt left Australia before the date of his bankruptcy and has not returned to Australia .

EVIDENCE ESTABLISHING GROUNDS :

The bankrupt advised in writing on 4 November 1988 and 26 February 1990 that when he left Australia in 1984, he did so with the intention of never returning. The bankrupt has refused to return to Australia when requested to do so by letter dated 9 March 1990 .

REASONS FOR OBJECTING :

The bankrupt's written admissions (as above) clearly indicate that when he left Australia he had no intention of returning .

After a private investigator reported on the bankrupt's activities and an informant elaborated on his financial interests, it was revealed that the bankrupt was operating via complex corporate structures on an international basis, which was subsequently confirmed in the Public Examination held in 1990. It was necessary to question the bankrupt in person so as to clarify the nature of his business activities. The bankrupt had previously been slow to respond to such queries which led to the loss of opportunity for investigating such international transactions .

The bankrupt's refusal to return to Australia has greatly hindered the progress of the administration and resulted in additional costs of some $500,000 and time delays in investigating the bankrupt's affairs ."

Section 149A of the Act had the effect that by reason of the Trustee's having filed this notice of objection on 28 June 1995, Mr Nelson would not be discharged from bankruptcy by operation of law until the expiry of a period of eight years from the date he returned to Australia, if he ever did.

Section 149K of the Act empowered the Inspector-General to review a decision of a trustee to file a notice of objection, inter alia , if requested to do so by the bankrupt, for reasons that appeared to the Inspector-General to be sufficient to justify such a review. On 6 September 1996, by a request bearing date 28 August 1996, Mr Nelson made such a request of the Inspector-General.

Two provisions relating to the role of the Inspector-General may be noted. Section 149M provided that for the purpose of the exercise of his or her powers, the Inspector-General might ask, relevantly, the trustee to provide such information, either orally or in writing, "about the decision to file the notice [of objection] and the reasons for the decision as the Inspector-General specifies". Subsection 149N (1) was as follows:

" On a review of a decision, if the Inspector-General is satisfied that :

(a)

the ground or grounds on which the objection was made was not a ground or were not grounds specified in subsection 149D(1); or

(b)

there is insufficient evidence to support the existence of the ground or grounds of objection; or

(c)

the reasons given for objecting on that ground or those grounds do not justify the making of the objection; or

(d)

a previous objection that was made on that ground or those grounds, or on grounds that included that ground or those grounds, was cancelled ;

the Inspector-General must cancel the objection ."

On 29 October 1996, Richard Theodore Thompson, the Inspector-General's delegate for the purpose, confirmed the Trustee's decision to file the notice of objection, in so far as it was based on the surviving ground of objection (the "absence from Australia" ground).

Section 149Q of the Act provided that an application might be made to the AAT for the review of, inter alia , a decision of a trustee to file a notice of objection, or a decision of the Inspector-General on the review of such a decision. On 12 November 1996, Mr Nelson applied to the AAT pursuant to that provision for review of the Inspector-General's decision.

After Mr Nelson's application for review was lodged with the AAT but before it was heard, the Act was amended yet again, in a respect which the Inspector-General submits is, and which Mr Nelson submits is not, relevant to the present case. By the Bankruptcy Legislation Amendment Act 1996 (Act No 44 of 1996) which commenced on 25 October 1996, subs (2) was added to s 149B. Previously s 149B had simply empowered, relevantly, the trustee to file an objection. The new subsection provided that the trustee must do so if the trustee believed that doing so would help make the bankrupt discharge a duty that he or she had not discharged and that there was no other way for the trustee to induce the bankrupt to do so.

The AAT heard Mr Nelson's application on 3 and 4 July 1997 and gave the decision the subject of this appeal on 15 August 1997.

REASONS FOR DECISION OF THE AAT

The AAT first addressed the ground of objection and the evidence establishing that ground as identified in the notice of objection. It was satisfied that Mr Nelson left Australia in September 1984, that is, before the date of the bankruptcy, and had not returned to Australia. Accordingly, the ground of objection was established. The AAT recorded that no evidence had been led that there were "any nefarious reasons" for Mr Nelson's departure from Australia, and that it was not established that the Trustee had ever requested him to return.

The bulk of the AAT's Reasons for Decision addressed the Trustee's "reasons for objecting" stated in his notice and set out earlier. The reasons were interrelated. In respect of the last paragraph of them, the AAT noted that since the Trustee had never requested Mr Nelson to return to Australia, it could not be said that there was, as that paragraph asserted, a "refusal" by Mr Nelson to return. Accordingly, it rejected the statement in the Trustee's reasons for objecting, "[t]he bankrupt's refusal to return to Australia has greatly hindered the progress of the administration".

The AAT examined the evidence relied on by the Trustee in support of his statement that "the bankrupt was operating via complex corporate structures on an international basis". It referred, in particular, to offers of payment made by Mr Nelson; to a public examination of him conducted in Registrar's Chambers in the English High Court by Mr R D Hacker as counsel for the Trustee on 22 June 1990 and 15 August 1990; to the fact that a solicitor acting on the Trustee's instructions had visited Jersey (where a company with which Mr Nelson was associated was based) in the company of Mr Nelson; and to the fact that the Trustee had visited London in 1992 without attempting to contact Mr Nelson.

Importantly, the AAT noted that since the public examination, very little, if anything, had been done to take his investigation of Mr Nelson's affairs further. It concluded that at best there was "scant possibility" of any further funds being made available to the Trustee by the ATO in the foreseeable future without the Trustee's presenting to the ATO a feasible plan to recover considerable money from the bankrupt estate. It observed that the bankruptcy had been on foot for some twelve years, at great cost (estimated to be in the vicinity of $500,000) with cooperation on the part of Mr Nelson, albeit sometimes tardy, yet still "without any benefit whatsoever to the creditors". The AAT continued:

" On the evidence there is no real prospect of any further productive action on the part of the trustee. Nor can the Tribunal conclude that the applicant is willing, even if he has the means (which is not apparent ), to make an offer which might be acceptable to the creditors. The evidence is that the only apparent reason for the trustee's objection is to keep the applicant in bankruptcy for a further period of eight years from when, if ever, he returns to Australia in the extremely unlikely prospect that he will make a 'genuine' offer to settle. We say 'extremely unlikely' because, despite a public examination and a subsequent investigation carried out with the cooperation of the applicant nearly seven years ago, the trustee has no tangible evidence of any property which may be available to the applicant on which he might fund such a 'genuine' offer. Previous offers, not accepted by the trustee and since lapsed, were contingent on future profitable performance by the applicant ." (at 18)

With reference to the decision of the Full Court in favour of the Trustee to which we referred earlier, the AAT had this to say:

" 39. ... The trustee was given further time by the Full Court to carry out an adequate investigation of the conduct and affairs of the applicant. ... Notwithstanding that any such investigation would have been hampered by the fact that the applicant resided overseas, in the opinion of the Tribunal, where there is no evidence of a lack of co-operation on the part of a bankrupt and, to adopt the phrase of Burchett J in Re Weiss [a reference to Re Weiss, Ex parte Official Trustee in Bankruptcy , unreported, FCA/Burchett J, 27 June 1986] the investigation has been 'lethargically pursued' by the trustee, it would be unfair to the bankrupt to delay his discharge. The trustee's present intentions are to sit on his hands and wait in hope that the applicant will make a 'genuine' offer to settle the estate. The trustee has no real idea of from where the substance of any such offer may come, unless it is from the proceeds of the sale of 1 Thurloe Close. But that hope has two obvious impediments - first, the property is not owned by the applicant, and there is no evidence that he has any beneficial interest in it and secondly, there is no indication that, even if sold, there would be any net proceeds after settlement of the mortgage to the Swiss bank. In any event, as Mr Christensen [counsel for Mr Nelson before the AAT] pointed out, if the applicant has any interest whatsoever in the property, the trustee is protected by s152 and it is unnecessary, for that reason, to maintain his bankruptcy ."

The AAT concluded that the Trustee's stated reasons for objecting had not justified the making of the objection, with the result that the Inspector-General's decision was set aside and the Inspector-General was directed to cancel the Trustee's objection.

Finally, the AAT referred to the power of the Inspector-General pursuant to s 149M, and therefore of the AAT on review (see s 43 (1) of the Administrative Appeals Tribunal Act 1975), to ask the Trustee for further information. It recorded that it did not exercise that power for reasons which included nine particular considerations which it identified. It added that the Trustee had had every reasonable opportunity to conduct an efficient and thorough administration of the bankrupt estate, and that it declined to launch a direct enquiry to provide the trustee with further opportunities to produce evidence of reasons in support of his objection.

OUTLINE OF SUBMISSIONS ON THE APPEAL

Outline of Inspector-General's submissions

The Inspector-General submits that the AAT wrongly interpreted s 149B of the Act as conferring on a trustee a general discretion to file a notice of objection, provided only a ground specified in s 149D (1) exists. He submits that it should have held, on a proper construction of ss 149B, 149C and 149D, that a bankrupt's conduct of a kind described in s 149D (1) constitutes a prima facie basis for filing a notice of objection, and that a trustee must file, or alternatively is entitled as of right to file, a notice of objection if conduct of the bankrupt of that kind has affected the administration of the bankrupt estate. According to the submission, the AAT erroneously adopted the approach and reasoning of the Full Court in Totterdell v Nelson (1990) 26 FCR 523 which was concerned with the now repealed s 149 (12) of the Act, the language, purpose and effect of which were significantly different from the present s 149B, which describes an "administrative power".

The Inspector-General relies on the history of the provisions, emphasising the following aspects of it. Prior to 1 July 1992, the then s 149 provided for objection to discharge, on four general grounds which were set out in subs (4). They were:

"(a)

that the bankrupt is able, or is likely within 5 years from the date of the bankruptcy to be able, to make a significant contribution to his estate ;

(b)

that the discharge of the bankrupt by force of this section would prejudice the administration of his estate ;

(c)

that the bankrupt has failed to cooperate in the administration of his estate ;

(d)

that the conduct of the bankrupt, either in respect of the period before or the period after the date of the bankruptcy, has been unsatisfactory ."

In his Second Reading Speech in relation to the Bankruptcy Amendment Bill 1991 ( Parl Debs, Senate, 14 November 1991 ), the Parliamentary Secretary to the Treasurer said:

" These grounds are all rather vague and uncertain, and do not specify with sufficient particularity just what the obligations of bankrupts are, and what conduct is likely to result in an extension of the bankruptcy. The Bill proposes that these grounds be replaced by new grounds of objection designed to make the bankrupt fully aware of his or her obligations, and to encourage the bankrupt to co-operate with the Trustee in carrying out the administration of the estate ." (at 3130)

The Parliamentary Secretary continued:

" The new grounds for objecting to the automatic discharge of the bankrupt are set out in proposed section 149D of the Act, to be inserted by clause 27 of the Bill. They include matters such as the bankrupt continuing to manage a corporation contrary to the Corporations Law, failure by the bankrupt to provide information about assets, liabilities and income where required by the trustee to do so , departure by the bankrupt from Australia without permission or failure to return where requested to do so , and failure by the bankrupt to attend a meeting of his or her creditors, or an examination or interview about his or her affairs. Some of these grounds will extend a bankruptcy for a period of up to 8 years, whilst the remainder will extend the bankruptcy for a period of 5 years ." (emphasis supplied)

The fourteen permissible grounds of objection substituted by s 27 of the Bankruptcy Amendment Act 1991 (No 9 of 1992) are, as foreshadowed, more specific than their four predecessors. As noted earlier, we are concerned only with the ground specified in s 149D (1) (a).

By the Bankruptcy Legislation Amendment Act 1996 (Act No 44 of 1996), subs (2) was added to s 149B as follows:

" The trustee of a bankrupt's estate must file a notice of objection to the discharge if the trustee believes :

"(a)

that doing so will help make the bankrupt discharge a duty that the bankrupt has not discharged; and

(b)

that there is no other way for the trustee to induce the bankrupt to discharge any duties that the bankrupt has not discharged ."

The Inspector-General submits that on a proper construction of ss 149B-149D, a trustee is entitled to cause the period of bankruptcy to be extended on any one or more of the fourteen specified grounds specified, unless the bankrupt's conduct in the circumstances of the particular case does not provide a basis for extension, for example, because that conduct has not affected or impeded the administration of the estate, as would be the case if an administration was complete to the trustee's satisfaction prior to the departure of the bankrupt from Australia. In sum, the Inspector-General submits that "the grounds of objection in s 149D (1) are prima facie grounds for extension in the sense that the grounds are likely to result in an extension of the bankruptcy".

The Inspector-General next attacks the decision-making process of the AAT. He submits, first, that the AAT failed to take into account six specified relevant considerations. These were:

"(i)

the estate was complex ;

(ii)

the Trustee suspected on reasonable grounds that the respondent had access to or control of undisclosed assets ;

(iii)

the respondent had in 1994 made offers to settle with his creditors for amounts varying between $1 million and $1.5 million ;

(iv)

there was no satisfactory evidence that the requirements of the Act had been performed by the respondent ;

(v)

the respondent's continuous absence overseas had :

(1)

hindered the progress of the administration of the bankruptcy ;

(2)

significantly increased the costs of administration of the bankruptcy ;

(vi)

the administration of the estate was incomplete ."

The Inspector-General's next ground of appeal is that the AAT took into account the following irrelevant considerations:

"(i)

the evidence had not established that the respondent had nefarious reasons for his departure from Australia ;

(ii)

the Trustee had not requested the respondent to return to Australia ;

(iii)

the Trustee had not established that the respondent had a legal or beneficial interest in assets which may in the future become available to the estate ;

(iv)

there was no direct evidence that the respondent was a man of substance ;

(v)

the Trustee had no present plan of how to improve the position of the estate and/or how such further action was to be funded ;

(vi)

the Trustee was under an obligation to take active steps in his administration of the estate whilst the respondent remained overseas ;

(vii)

the investigation of the estate had been lethargically pursued by the Trustee ;

(viii)

it was extremely unlikely the respondent would make a further settlement offer if the bankruptcy was extended ."

In particular, the Inspector-General submits that whether or not an extension of the period of bankruptcy is likely to result in a settlement offer is irrelevant and that the legislature has indicated that continuous absence outside the jurisdiction is in itself a ground for extension, whether or not the extension will benefit creditors.

The Inspector-General submits that if the AAT took into account any of the six considerations mentioned earlier, it gave so little weight to them that it committed an error of law or made an unreasonable decision.

Similarly, the Inspector-General submits that there was no material before the AAT upon which it could have drawn the following conclusions, or, alternatively, that the following conclusions were unreasonable:

"(i)

the respondent had valid reasons for remaining overseas ;

(ii)

the respondent had co-operated with the Trustee in the administration of the estate ;

(iii)

it was extremely unlikely the respondent would make a further settlement offer if the bankruptcy was extended ;

(iv)

an extension of the period of bankruptcy was not justified ..."

According to the Inspector-General's notice of appeal, conclusion (iv) resulted from the AAT's failure to give any or due weight to the six considerations listed above.

Finally, the Inspector-General submits that the AAT exercised its discretion under s 149M by refusing to exercise the power given by that section to request the Trustee to provide further information about his decision to object and his reasons, on wrong principles, its error in this respect being attributable to its erroneous construction of ss 149B-149D of the Act.

Outline of Mr Nelson's submissions

Mr Nelson submits that the AAT correctly decided the matters the subject of the appeal on the basis of the legislation as it was as at 6 September 1996 when he lodged his application with the Inspector-General, or, at the latest, as at 12 December 1996 when he lodged his application to the AAT for review of the Inspector-General's decision (there being no relevant legislative changes between those two dates). His submission is, therefore, that the relevant provisions are those which were to be found in the Act as it was after the amendments effected by the Bankruptcy Amendment Act 1991 on 1 July 1992, but before the amendments effected by the Bankruptcy Legislation Amendment Act 1996 on 16 December 1996. Accordingly, so the submission goes, s 149B (2) was irrelevant to the AAT's decision and is irrelevant to the present appeal. Mr Nelson submits, however, that in any event there was nothing in the facts to activate that subsection, even if it had been applicable.

Mr Nelson seeks to emphasise that a notice of objection is not intended to be a necessary consequence of the existence of a ground of objection and submits that compliance with s 149C (1) requires more than this. In fact, he submits, the legislation assumes the exercise of a discretionary judgment (he refers to Re Hall (1994) 14 ACSR 488 (FCA/Branson J) at 492-494 and Re Ansett; Ex parte Ansett v Pattison (1995) 56 FCR 526 (Olney J) at 530-531).

Mr Nelson submits that the AAT did not adopt the approach and reasoning of the Full Court in Totterdell v Nelson (1990) 26 FCR 523, but appropriately reviewed the Full Court's reasoning in that case then set out its own reasons for arriving at a different conclusion. In any event, according to the submission, the approach taken by the Full Court to the construction of the old s 149 (12) is not materially different from the approach properly to be taken here: there is always a discretion whether to file a notice of objection to be exercised in the light of relevant policy considerations, that is, upon a balancing of the interests of creditors, the bankrupt and the public.

Mr Nelson submits that, in substance, the Inspector-General is inviting the Court to review the evidence that was before the AAT and to supplant the AAT's view with its own, a process which would involve an impermissible review of the AAT's assessment of the weight to be given to the various considerations for and against the objection, and which could lead only to the insufficient conclusion that different findings might also have been supportable.

According to Mr Nelson's submission, there are sufficient unchallenged findings by the AAT to support its decision, for example:

•

that the only apparent reason for the Trustee's objection was to keep the bankrupt in bankruptcy to induce the extremely unlikely prospect that he would make a "genuine offer to settle";

•

that it was the Trustee's intention to sit on his hands;

•

that the Trustee had no real idea where the funds for any settlement might come from; and

•

that there was no evidence of Mr Nelson's leading a lifestyle not equated to his disclosed income, apart from that of his residing at a "good address" in London.

In relation to s 149M (1), Mr Nelson submits that there was nothing in the Act or in the circumstances of the case requiring the AAT to exercise its power to request further information. He contends that although the Inspector-General (or the AAT for the purposes of review of the Inspector-General's decision) had power to request further information, that power was limited by reference to the reasons set out in the notice of objection, and that it was not a proper exercise of the power to reinvent the objection, to cast it in another light, or to go outside the stated "reasons for objecting". Accordingly, so the contention goes, the AAT could not receive evidence or submissions not germane to those reasons, and the Inspector-General and the AAT were required to apply the test set out in s 149N (1) (c) of the Act and assess "the" reasons given for objecting on the "particular" ground stated (Mr Nelson referred to Re Woodman (1996) 22 AAR 508).

REASONING ON THE APPEAL

Section 44 of the Administrative Appeals Tribunal Act 1975 provides for appeals to the Court from decisions of the AAT "on a question of law". It is convenient for us to deal with the errors of law propounded by the Inspector-General under two headings: first, the construction of the legislative provisions; and, second, the decision-making process of the AAT.

Construction of the legislative provisions

In our opinion, the Inspector-General's submissions as to the construction of s 149B should not be accepted. Several considerations lead us to this view.

In providing that the trustee "may file" a written notice of objection to discharge, s 149B (1) uses language by which discretions are commonly conferred.

The policy of the current bankruptcy legislation is that, prima facie , a bankrupt is entitled to the benefit of a discharge by operation of law. The sections dealing with objections to discharge are consistent with this policy. By requiring that a notice of objection must not only set out the ground or grounds of objection and refer to the evidentiary material relied upon in support, but also state the "reasons" for objecting, s 149C makes it clear that a trustee filing such a notice must have reasons for doing so, in addition to being satisfied that the evidentiary material establishes one or more permissible grounds. By providing for review by the Inspector-General of the decision to object, s 149K makes it clear that the reasons for objecting were intended to be subject to scrutiny. Finally, by providing for review by the AAT of, inter alia , a decision to file a notice of objection and the Inspector-General's decision on review of such a decision, s 194Q again makes it clear that the reasons for the filing of a notice of objection are to be the subject of scrutiny.

There is no reason to be found in these provisions for thinking that the considerations relevant to the exercise of the discretion to file a notice of objection are any less extensive than all those conformable to the purpose and objects of the Act. In the absence of any indication of a contrary legislative intention, we would be disposed to think that in order to "keep a person bankrupt" beyond the ordinary period, a trustee would need to have reasons directed to achievement of a purpose of the law of bankruptcy. In fact, although ss 149B-149D do not indicate what will be "sufficient reasons", as distinct from "permissible grounds", to support an objection, s 149N (1) (set out earlier) provides that on review of a trustee's decision to object the Inspector-General must cancel the objection if, inter alia , he is satisfied that the reasons given by the trustee for objecting "do not justify the making of the objection". Thus, far from giving rise to a prima facie right to object, the existence of a permissible ground supported by sufficient evidence is a threshold: there must also be reasons justifying the making of the objection in the particular case.

It is true that the provisions contained in the old s 149 which were the subject of the Full Court's decision in Totterdell v Nelson (1990) 26 FCR 523 were structured differently from the present provisions, but under them, as under the present s 149B, there was a discretion whether to object to discharge. The new grounds, introduced by means of s 149D inserted by s 27 of Act No 9 of 1992, were intentionally more specific than their four predecessors in the old s 149 (4), but we find nothing in the Second Reading Speech or in the Explanatory Memorandum which accompanied the Bankruptcy Amendment Bill 1991 to suggest that the legislature intended a fundamental change in the general principles governing a trustee's decision whether to object. It is true that the descriptions of the four grounds in the former s 149 (4) were expressed in terms which made clear their respective rationales, while the fourteen grounds set out in the new s 149D (1) are not all so expressed. We do not think, however, that this change signifies a legislative intention that considerations of purpose, utility, and relevance to the bankruptcy context, were no longer to be relevant to a trustee's decision whether to object. Indeed, the reference in the Second Reading Speech set out earlier to "departure by the bankrupt from Australia without permission or failure to return where requested to do so " (emphasis supplied) suggests a contemplation that a trustee would not object, where nothing more appeared, for example, than that a bankrupt had left Australia before the bankruptcy and had not returned since.

We do not overlook the fact that a failure to return in response to a request by the trustee is an independent ground of objection afforded by s 149D (1) (h). That fact suggests that the ground provided for in s 149D (1) (a) was intended not to depend also upon the making of such a request. But there remain conceivable purposive considerations that might constitute good reasons for objecting on the ground described in s 149D (1) (a). For example, in consequence of the bankrupt's being outside Australia, the trustee may simply need a little more time beyond the expiry of the statutory period in which to complete the administration, yet a request that the bankrupt return to Australia would not be an apt response. According to the construction advanced by the Trustee, however, the mere fact of the bankrupt's being outside Australia, albeit quite blamelessly on his or her part, entitles the trustee (or the Official Receiver) to prevent a discharge, even though any inconvenience or delay caused by the bankrupt's absence was long since a "spent force". The legislature should not lightly be thought to have intended such a result.

We think that the Inspector-General's reliance on subs 149B (2) is misplaced. He submitted that that subsection came into operation on 12 December 1996, but in fact it was introduced with effect from 16 December 1996. It was provided for as Item 270 in Schedule 1 to Act No 44 of 1996. That Act was assented to on 25 October 1996 and s 2 (2) provided, relevantly, that Schedule 1 was to commence on a day to be fixed by Proclamation. Schedule 1 was proclaimed to commence on 16 December 1996 (see Gazette G49 of 11 December 1996 p 3677). Mr Nelson's request to the Inspector-General to review the Trustee's decision to file the notice of objection was made on 6 September 1996 and his application to the AAT for review of the Inspector-General's unfavourable decision was lodged on 12 December 1996. Both of these dates preceded the introduction of subs (2) into s 149B. In any event, subs 149B (2) had a prospective operation in relation to the filing of a notice of objection to discharge: it imposed after 16 December 1996 an obligation upon a trustee of a bankrupt's estate to file such a notice if the trustee held both of the beliefs specified in the subsection. The only notice of objection with which we are concerned is that which was filed on 28 June 1995, well before 16 December 1996. We do not find it necessary to discuss the general question whether, upon review by the AAT, the AAT is confined to applying the law as it existed at the date of the primary decision; cf Lee v Department of Social Security (1996) 68 FCR 491 (FC).

Even if, contrary to our view, the new subs 149B (2) might otherwise have had scope for operation, on the evidence before the AAT the provision was not activated. The Inspector-General has not pointed to any duty which Mr Nelson has not discharged and which he would be made to discharge by the filing of the notice of objection by the Trustee.

Decision-making process of the AAT

It is useful to note certain further facts that were before the AAT.

The first meeting of Mr Nelson's creditors convened by Mr Melsom as controlling trustee was held on 14 November 1983 and was adjourned several times pending a decision by the ATO as to whether it would support or oppose an arrangement under Part X. The final "reconvened first meeting of creditors" was held on 10 December 1984. The minutes of the meeting and re-convened meetings indicate that Mr Nelson was cooperating with the Western Australian office of the ATO; that that office was awaiting instructions from the ATO's head office in Canberra; that the head office decided against the proposed Part X arrangement shortly before 10 December 1984; and that on 10 December 1984 the creditors resolved that Mr Nelson's property be no longer subject to control pursuant to Part X of the Act and that he be required to present a debtor's petition within seven days. The last three paragraphs of the minutes are instructive:

" Mr Melsom advised that a circular would forthwith issue briefly outlining the events of the meeting, however, Mr. Nelson was now a debtor at large and regretably , [sic] despite the significant time delay during the extended controlling period and the significant costs attached thereto, no commercially constructive remedy had been achieved despite the obvious goodwill of all involvees .

Mr. Melsom again complimented Mr. Zani, representing the Australian Taxation Office for the manner in which he had conducted his Department's investigation and more so, the impartial and commercially responsible attitude adopted by relevant officers within the Western Australian division .

It was, however, a sad indictment on the bureaucratic process that the final decision was apparently not based upon that report but determined as a matter of policy or politics, to the very real commercial disadvantage of creditors generally and the public at large ."

Mr Nelson did not present a debtor's petition within seven days after 10 December 1984, although apparently he did file one after the ATO filed a creditor's petition in April 1985. His own petition was dismissed in favour of that of the ATO.

The passage from the minutes which we have set out above may well accurately reflect the stance taken at the time by the ATO. It does appear to reflect that taken by the Trustee, and, we presume, the ATO, throughout the long history of Mr Nelson's bankruptcy, that is, that as a matter of general principle and policy, a person such as Mr Nelson should be kept in bankruptcy forever, or, at least, that the ATO and the Trustee should be seen to be making that assertion. We will say more of this below.

There is no doubt that since going to England to live, Mr Nelson has been active in negotiating various apparently sophisticated commercial transactions involving companies and trusts, and in travelling internationally on business and on holiday. It is readily understandable that the suspicions of the Trustee, and, we presume, of the ATO, have been aroused. Mr Nelson was examined at length and in detail in London on 22 June 1990 and 15 August 1990. The examination did little to allay suspicion. We will shortly mention certain aspects of Mr Nelson's evidence, with a view to giving the flavour of the whole.

Prior to the examination, on 2 April 1990, Mr Nelson made an affidavit which he furnished to the Trustee. According to the affidavit, it was made without prejudice to Mr Nelson's right to object to the Trustee's "entitlement to be given assistance by the English Court or to receive ... any of the assets referred to in [the] Affidavit." He swore in the affidavit that all of the assets in which he had a legal or beneficial interest were disclosed in a schedule to the affidavit. They were as follows:

1.

Approximately £ 1,500 net at Barclays Bank plc in a cheque account (described as being the net amount after payment of a Barclay Visa card account).

2.

A half share in the furniture at 1 Thurloe Close, London where he lived, the half share being worth about £ pound;4,000.

3.

A seventy-five per cent interest in a motor vehicle, the seventy-five per cent interest being worth about £ 6,000.

4.

Personal effects and clothing of no commercial value to any other party.

The affidavit disclosed, in addition, assets which it described as having been acquired by companies and trusts, largely as a result of Mr Nelson's efforts, since the date of bankruptcy, but in which he had, according to the affidavit, "no legal or beneficial interest". There were eight such assets. They were described in technical legal terms over some three pages of the affidavit. The picture which emerges is that Mr Nelson was heavily immersed in sophisticated financial dealings which involved, in various ways, companies, trusts, patents and royalties. The affidavit sought to highlight considerations which minimised the value of the assets. It referred, for example, to a charge to which some of them were subject. What is important, however, is that he swore that although he had been active in the negotiation of the acquisition of the assets, he had no legal or beneficial interest in them whatever.

In his examination, Mr Nelson swore that he was not a director of any of the companies and had no beneficial interest in any of the companies or trusts with which he was associated. The house at 1 Thurloe Close, South Kensington, London SW7 2SL, where he lived, was registered in the name of Tiffany Investments Limited ("Tiffany"), the registered office of which was at 7 Library Place, St Helier, Jersey. Mr Nelson's sworn evidence was that he had no interest in that property and that the issued capital of Tiffany had been initially owned by the "Harrods Trust" which was established for the benefit of his wife and children, and the "Bloomingdale Trust", a trust for the benefit of Ms Chantry, with whom he lived in the house. He said that the property had been purchased for £ 250,000, that it was subject to a first mortgage to a Swiss Bank, and that the remainder of the purchase money had come from the Harrods Trust and the Bloomingdale Trust. He said that progressively the shares in Tiffany had become owned entirely by the Bloomingdale Trust.

The Harrods Trust was established by Mr Nelson in January 1985, some four months before the making of the sequestration order. He borrowed from the Harrods Trust "something in the order of £ 40,000, £ 50,000 or £ 60,000".

The Trustee had retained a private investigator to investigate Mr Nelson and his affairs prior to his examination. As a result, counsel for the Trustee was able to confront him, in the course of the examination, with evidence of overseas trips and purchases which he had made. A reading of the transcript of the examination gives some understanding of the cause for the Trustee's concern. Questioned about a trip which he had made to Las Vegas, he gave the following account:

" ... I went to the Sporting, Hunting, Outdoor Trade Show, known as the 'S.H.O.T.' show, which is the world's largest show of that kind, at which the Victory Pistol was exhibited. I went for the purposes of meeting sub-contractors, distributors and to assist in the promotion of the gun. From there I went down to Phoenix with Paul Davies, who continued to work on the gun business. Those fares were paid for by GP Investments ."

There was evidence of trips to other overseas places, including Singapore, the Bahamas, Honolulu, St Louis, Los Angeles, Miami, Portugal, and New York, sometimes on business and sometimes on holiday; of expensive dining at restaurants; of the purchase of clothes at "Gentlemen's Jodhpurs" and "Royal Formal and Bridal"; of dealings with numerous companies and trusts in addition to those already mentioned; and of dealings with business associates.

According to the transcript, there were several "long pauses" during the examination while answers to questions were awaited from Mr Nelson.

At the end of the hearing on 15 August 1990, the examination of Mr Nelson was adjourned by the Registrar to a date to be fixed. Counsel appearing for the Trustee estimated that a further one day of hearing time would be needed. Apparently this was not pursued.

The Trustee's position is quite simple. He does not suggest that keeping Mr Nelson in bankruptcy will be to the benefit of creditors. He cannot point to any further investigation which he has caused to be made since the last day of Mr Nelson's examination on 12 August 1990 and he does not have a plan to pursue any other particular course of investigation in the future. Not to put too fine a point on it, he finds it galling to see a man discharged from bankruptcy by operation of law, who lives at a fashionable address, is active in the sophisticated affairs of a substantial number of companies and trusts, who travels internationally, who wines and dines (or is wined and dined) well, but who has contributed only $8,392 to his bankruptcy, the last contribution having been made on 21 October 1987, and the investigation of whose affairs has cost the ATO $500,000.

We have considerable sympathy with the Trustee's position. If the Trustee had been active since 15 August 1990 in pursuing Mr Nelson or had a plan to do so now, we would be anxious to facilitate his efforts. But we think that the AAT's decision, and the process by which it was reached, does not reveal any error of law. As noted earlier, there is not the slightest reason to think that an offer will be forthcoming if Mr Nelson is not discharged from bankruptcy. Maintenance of the objection will serve no purpose other than to penalise him. We do not think that this is a purpose of the discretion given to a trustee to file a notice of objection to discharge.

One further matter should be noted: contrary to the terms of the notice of objection, Mr Nelson did not "refuse" to return to Australia. The notice of objection mentioned a request that he return made by letter dated 9 March 1990. That letter did not request him to return at all. By that letter, the Trustee asked Mr Nelson whether he would submit to the requirement of public examination. We know that he was in fact examined in London on 22 June and 15 August 1990.

We turn now to the specific grounds of appeal. The Inspector-General's submissions addressed them in groupings different from those in which they appeared in the notice of appeal, but we will follow the classification in the notice of appeal.

Decision-making process of the AAT

Failure to take into account relevant considerations

We do not think that the AAT was bound as a result of an implication to be found in the subject-matter, scope and purpose of the Act, to take into account any of the six considerations mentioned: cf Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1986) 162 CLR 24 at 39-40 (Mason J).

We make the following additional observations in relation to the respective considerations identified by the Inspector-General.

(i)

The AAT was well aware that Mr Nelson's bankrupt estate was complex.

(ii)

The AAT was well aware of the Trustee's suspicion that Mr Nelson had access to or control of, undisclosed assets, but it was not established that the suspicion was based on reasonable grounds or that the Trustee was taking steps to uncover the supposed undisclosed assets.

(iii)

Our attention was not directed to evidence that Mr Nelson had, in 1994, made offers to settle for an amount between $1,000,000 and $1,500,000. The Appeal Book contains references to offers of $50,000 and $90,000. In addition, Mr Nelson's affidavit sworn 2 April 1990 to which we have previously referred, commenced:

" I make this affidavit in the context of a final offer to Mr G. F. Totterdell ..."

and concluded:

" In the event that my trustee shall accept any offer in reliance upon this affidavit and it is subsequently discovered that I have omitted to disclose herein any material assets, I hereby expressly agree that the trustee will not be bound by such a settlement ."

But the affidavit contained no offer and apparently none was made at the time.

(iv)

The AAT did not err saying that there was no satisfactory evidence that Mr Nelson had not complied with the Act's requirements, and, in any event, non-compliance was not a reason given by the Trustee for the filing of his notice of objection.

(v)

Although Mr Nelson's continuous absence overseas may have posed some inconvenience for the Trustee, it was not this but the Trustee's understandable suspicion and desire to investigate complex corporate and trust arrangements with which Mr Nelson appeared to have a connection, that had involved delay and cost. In this respect, the position would have been much the same if Mr Nelson had been in Australia.

(vi)

It was not shown before the AAT that the administration of the estate was incomplete in any particular respect.

Taking into account irrelevant considerations

We think that the eight considerations mentioned were all of varying degrees of relevance to the decision whether to file a notice of objection.

Absence of material to support conclusions or unreasonableness of conclusions

We think that there was material to support the AAT's conclusions that Mr Nelson had valid reasons for remaining overseas, that he had cooperated with the Trustee in the administration of his bankrupt estate, and that it was extremely unlikely that he would make a further settlement offer if his bankruptcy was extended.

In relation to the failure to give any or due weight to the six considerations which it is complained the AAT failed to take into account, as noted above, we do not think that the AAT was bound to take them into account and, in any event, we think that it is not shown that they were considerations to which the AAT did not give due weight.

Failure to exercise discretion under s 149M

We do not think that the AAT was required to exercise its power under subs 149M (1) to request further information.

CONCLUSION

The application should be dismissed and the Inspector-General should be ordered to pay Mr Nelson's costs.

I certify that this and the preceding twenty-six (26) pages are a true copy of the Reasons for Judgment herein of the Court