Red red wine – disclosure of assets in the bankruptcy context

A recent decision of the Administrative Appeals Tribunal involved a trustee in bankruptcy successfully objecting to the discharge of a bankrupt.  It serves as a warning for mischievous bankrupts to fully disclose their assets.  It also illustrates the Tribunal’s view, which may not shared by many, that fine wine is not necessary for the functioning of a household.

In Hill and the Inspector General in Bankruptcy [2012] AATA 69, 8 February 2012 the Tribunal upheld the trustee’s objection to discharging the bankrupt, Mr Hill.  The objection was based upon a number of grounds, one of which was that Mr Hill failed to comply with the trustee’s request for information about his property.

The Bankruptcy Act 1966 (Act) imposed obligations on Mr Hill to assist the trustee by providing information, full and truthful responses to enquiries and not attempting to deal with the assets.  However there was continuous friction between Mr Hill and the trustee during the course of the trustee’s enquiries.

The trustee asserted that Mr Hill made incomplete disclosure of assets, failed to provide proper information on his activities and attempted to obstruct the work of the trustee.  Mr Hill, on the other hand, stated that in his view the trustee was oppressive, paranoid and devious.

Section 149D(1)(d) of the Act sets out the ground for objecting where the bankrupt fails to comply with the trustee’s written request for written information about property.  The trustee wrote to Mr Hill and enquired about a number of cases of wine that were found at Mr Hill’s premises.  Mr Hill advised that they were gifts for his daughter and wife.  There were an additional six bottles of wine which Mr Hill claimed were for his personal consumption and came within the Act’s definition of excluded assets, which includes 'foodstuffs'.  They may well have been for Mr Hill’s personal consumption in reality, however the Tribunal was not prepared to accept that position in the bankruptcy context.

The Act does provide that certain household items are exempt, however expensive bottles of wine such as those in Mr Hill’s possession were not within that category.  The Tribunal considered the context of regulation 6.03 of the Bankruptcy Regulations 1996 which prescribes the kinds of household property that are exempt.  It extends to 'foodstuffs…bedding, linen, towels and other household effects - that property to the extent that it is reasonably appropriate for the household' with regard to a range of factors including whether the property is reasonably necessary for the functioning or servicing of the household.

The Tribunal concluded that given the nature of the other items in that regulation, wine could not be considered 'foodstuffs'.  Even though the list is not exclusive, the Tribunal did not accept that expensive wine (the bottles were worth about $99 each) can be seen as reasonably necessary for domestic use.

This ground was upheld by the Tribunal together with seven other grounds raised by the trustee.  The Tribunal found that even if the trustee had acted with malice, conspiracy or incompetence, as alleged by Mr Hill, that the facts proved would result in the same conclusions being reached regardless of the trustee’s behaviour.

Mr Hill may have been somewhat of a wine connoisseur, but his failure (among other things) to properly disclose his assets resulted in the period of his bankruptcy being extended by two years – a result that may not go down as smoothly as those bottles of wine.

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