Bobos v Deputy Commissioner of Taxation, in the matter of Bobos

Director penalty notice issued by the ATO to Mr Bobos 6 Mr Bobos was the sole director and secretary of Bobos Engineering and is the sole director and secretary of Boss Constructions (NSW) Pty Ltd (Boss Constructions). 7 On 11 February 2014 the DCT issued a director penalty notice to Mr Bobos under s 269-25 of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA 1953) (Penalty Notice). The Penalty Notice relevantly provided: Please find enclosed a notice of your liability to pay a penalty equal to the amount(s) of certain specified PAYG withholding liabilities that BOBOS ENGINEERING AUSTRALIA PTY LTD, ACN 083002411 (the company), of which you are, or were, a director at relevant times, failed to pay to the Commissioner. You automatically become liable to the penalty when the company failed to pay the amount(s) set out in the enclosed notice by the due date(s). The penalty will be remitted if: (a) the company's liability has been discharged; or (b) company is under administration within the meaning of section 436A, 436B or 436C of the Corporations Act 2001; or (c) the company is being wound up within 21 days from the date on which the enclosed notice is given to you; that is, 21 days from the issue date of this letter. You should keep in mind that you will continue to be liable to a penalty unless one of the three options described above has been adopted by the end of 21 days after the date of this letter. We may commence action for the recovery of the penalty without further warning unless, at the end of 21 days from the date on which the enclosed notice is given to you: (a) the company's liability has been discharged; or (b) the company is under administration within the meaning of section 436A, 436B or 436C of the Corporations Act 2001; or (c) the company is being wound up; or (d) an arrangement relating to such liability is in force under section 255-15 in Schedule 1 of the Taxation Administration Act 1953 (TAA). 8 Mr Bobos failed to comply with the Penalty Notice within 21 days as required by its terms. 9 Ms Crump explained the basis of Mr Bobos' liability for the director penalties included in the Penalty Notice as follows: (1) as at 11 February 2014, Bobos Engineering had withheld from its employees, but failed to remit to the DCT, $527,147.64 (PAYG Withholding Amount); (2) as the sole director of Boss Engineering, Mr Bobos was obliged under s 269-15(2) of Sch 1 to the TAA 1953 to cause the company to remit the PAYG Withholding Amount to the Commissioner of Taxation (Commissioner) or to appoint an administrator to Bobos Engineering pursuant to ss 436A, 436B or 436C of the Corporations Act 2001 (Cth) (Corporations Act) or to wind up the company; and (3) by the due date for payment of each amount making up the PAYG Withholding Amount none of the steps referred to in the preceding subparagraph had been taken thus making Mr Bobos liable to a penalty equal to the amount of Bobos Engineering's unremitted PAYG Withholding Amount pursuant to s 269-20(1) of Sch 1 to the TAA 1953. 10 Ms Crump also explained that a director penalty is a distinct debt from Bobos Engineering's debt arising from its failure to remit the PAYG Withholding Amount and that where a director penalty is raised pursuant to a director penalty notice it is the DCT's practice to establish a new computer record in the ATO system records to record the liabilities of and payments by that director in relation to the director penalty. That is, when a director becomes personally liable for director penalties it is the DCT's practice to treat the recovery of that penalty as a separate matter to the recovery of the company's PAYG withholding debts. 11 In February 2014 on receipt of the Penalty Notice Mr Bobos contacted Des Munro of BRI Ferrier, an insolvency specialist, and had a conversation with Mr Munro to the following effect: Mr Bobos: I have contacted the ATO and they have advised me to submit a payment proposal with financials and an explanation of how the debt arose and why it hasn't been paid and also a letter from my solicitor. Mr Munro: I will send you a form instrument of appointment to sign if they get back to you rejecting your offer. You will need to sign it and fax it to me to avoid being personally liable. Mr Bobos: Okay I will sign it and have it ready to send when I hear back from the ATO. Mr Munro: If you cannot work out a payment arrangement with the ATO, you will need to place the company into voluntary administration so that you will not become personally liable for the company's debt. Mr Bobos: If I place the company into voluntary administration it will affect the litigation against Crystal Mining Australia. Mr Munro: Check that out with your legal advisor. Mr Bobos: Ok I will. 12 On 4 March 2014 Mr Munro sent an email to Mr Bobos attaching "the documents which need to be executed in order to place the company into Voluntary Administration as previously discussed". 13 In February 2014 Mr Bobos had a conversation with Stafford Poyser of NECA Legal to the following effect: Mr Bobos: Hi Stafford, I have received a director penalty notice from the ATO and have contacted an insolvency specialist and he told me to place the company into voluntary administration and I told him that this could affect the Cristal claim. Does it? Mr Poyser: Yes, this will affect the current payment claim that you are preparing to submit to Cristal. Nick you need to explain this to the ATO. Mr Bobos: Okay, I will call them. 14 Mr Bobos obtained advice from NECA Legal which he said was to the effect that he not place Bobos Engineering into voluntary administration, that he discuss the matter with the ATO and that he await an outcome of Bobos Engineering's claims against Cristal Mining. A letter dated 23 April 2014 from NECA Legal addressed "to whom it may concern" set out the claims made and to be made by Bobos Engineering against Cristal Mining and concluded as follows: ASSISTANCE REQUIRED Bobos [Engineering] requires all the assistance you may be able to provide in order to properly pursue these claims. 15 Mr Bobos asked his finance assistant, Barbara, to look at the ATO website and gather the required financial information. He then commenced writing a payment proposal. Before submitting his proposal, Mr Bobos telephoned the ATO and had a conversation to the following effect with a person whose name he now cannot remember: Mr Bobos: Hi we have prepared a letter very detailed in regards to the DPN notice we think it best to run the claim with crystal mining to recover the company's money but we need to know if the ATO excepts [sic] it. ATO Employee: Send it through and we will get back to you. Mr Bobos: Ok. 16 On 3 March 2014 Mr Bobos sent a letter addressed to the Debt Collection Officer at the ATO which he described as his payment proposal (March 2014 Proposal). The March 2014 Proposal provided information under the headings "how the debt arose", "why it hasn't been able to have been paid" and "plan to pay for the debt" where it described payment claims which either had been or were to be lodged against Cristal Mining and proceedings commenced in the Supreme Court of New South Wales. The March 2014 Proposal also noted that Bobos Engineering had been quoting on new work and had been awarded new contracts. It then stated: 3.8 It is planned that amounts outstanding to the Australian Taxation Office (ATO) will come from funds generated by new works and funds acquired from the above claims, if necessary. Depending on timeliness and amounts of awarded funds, Bobos Engineering proposes to make installment payments in order to continue to maintain operation of the business. In the meantime, we ask for a deferment of enforcement action until actions against Cristal Mining are resolved. Meanwhile, Bobos Engineering will continue to maintain the current payment arrangement of $27,936.00 as a minimum on the seventh day of each month. 17 After providing current financial information about Bobos Engineering, the March 2014 Proposal concluded under the heading "summary" as follows: In summary, in order to have any penalty remitted, we observe that there are three options in this regard: (See ATO letter- Director Penalty Notice). a) Discharge of company liability: This option could be achieved on receipt of funds from the current payment claim under the Building and Construction Industry Security of Payment Act 1999 (NSW). However, it is unlikely that this will occur within the 21 day period within the date of the letter dated 11 February 2014. Additional time is needed to accommodate the repayment under a payment arrangement. Under the current circumstances, we can only maintain the current facility of $27,936 per month. b) Company under administration: Should the company go into voluntary administration before the three claims are adjudicated and enforced or settled, Bobos Engineering will not be able to pursue its claim under the Building and Construction Industry Security of Payment Act 1999 (NSW). This is because this legislation is for the companies that are not under administration or in liquidation. As soon as a company is in administration or in liquidation, claims under the A Building and Construction Industry Security of Payment Act 1999 (NSW) cannot be enforced by it. … c) The company being wound up: In the event of failure of all three (3) claims, the Director, in his capacity of responsibility would consider voluntary administration of the company as an ultimate course of action. However, the Director believes that if Bobos Engineering is successful in its upcoming and future intended tenders that all of the above may not be necessary. 18 Mr Bobos said that the ATO acted in a manner that led him to believe that it accepted the March 2014 Proposal in response to the Penalty Notice. He said, had the ATO responded to him within the 21 day period and/or notified him that they did not accept the March 2014 Proposal, he would have had no other option but to put Bobos Engineering into voluntary administration. Mr Bobos said that the ATO did not respond within the 21 day period to inform him whether the March 2014 Proposal was accepted or not which meant that he was out of time to place the company into voluntary administration. 19 That evidence cannot stand. First, given the Penalty Notice was dated 11 February 2014, the 21 day period within which Mr Bobos was required to take a relevant step expired on 4 March 2014. That is the date of the March 2014 Proposal. Thus it was not possible for the ATO to provide a response within that period. In any event, a subsequent letter dated 23 April 2014 to the DCT records that on 9 April 2014 the ATO rejected the March 2014 Proposal and that Mr Bobos sought a review of that decision. Mr Bobos did not take any steps to put Bobos Engineering into voluntary administration on receipt of that correspondence. That did not occur until some 11 months later.

Mr Bobos' health 20 Mr Bobos said that in early 2014 he suffered major mental health issues which he described as traumatic stress caused by the legal issues with Cristal Mining as well as the proceedings commenced against Cristal Mining for return of Bobos Engineering's bank guarantee. Mr Bobos said that he suffered from severe depression and anxiety which hampered his ability to understand the severity of the Penalty Notice. 21 Mr Bobos gave evidence about his health. In 2012 he was diagnosed with "severe obstructive sleep apnoea syndrome". He said that this, coupled with the financial stress brought about by the dispute with Cristal Mining, made it impossible for him to sleep and to concentrate on his business. 22 On 14 March 2013 Mr Bobos had a conversation with Joe Bannister, a manager at Cristal Mining, after which Mr Bannister sent Mr Bobos an email of the same date which included: As per our discussion today, we would like to offer you the services of Joanie Sanderson. Joanie is a councillor who has been very helpful to Cristal in the past. Please call her on … 23 Mr Bobos said that in 2013 he was unable to go to work and when he did go he was unproductive and could not concentrate or manage the business. 24 Commencing on 26 June 2013 Mr Bobos sought the assistance of naturopath, Shamarie Flavel of Shamarie's Body and Mind Therapies. In a document titled "general affidavit" dated 28 August 2014 Ms Flavel said that Mr Bobos later employed an operations manager to relieve him of some of his workplace stress, while he focused on improving his health; that she initially found Mr Bobos to be emotional and unable to remain focussed on the relaxation and mindfulness techniques she was teaching him; and that he was having difficulty focusing on his workplace duties. 25 A medical certificate dated 27 August 2014 from South Medical Centre, Broken Hill states that the certifying doctor saw Mr Bobos on 23 November 2013 for anxiety and depression caused by work related stress since January 2013 and that at the time he was offered treatment but that Mr Bobos wished to continue with naturopathic treatment. 26 Ms Wayman, who was an administration officer at Bobos Engineering from 2012 to 2015, gave evidence that in late 2012 she began to observe a change and decline in Mr Bobos' behaviour and that, at the time, he was under substantial stress as a result of a contract with Cristal Mining. Ms Wayman sought to persuade Mr Bobos to seek medical assistance.

Commencement of proceedings in the District Court of New South Wales 27 On 21 July 2014 the DCT commenced proceeding 2014/00214461 in the District Court of New South Wales (District Court Proceeding) against Mr Bobos as defendant claiming payment of $423,398.95 made up of unpaid income tax and general interest charges thereon for the years of income ended 30 June 2012 and 30 June 2013 in the sum of $15,303.24 and director penalties payable pursuant to s 269-20(1) in Sch 1 to the TAA 1953 for amounts withheld by Bobos Engineering from payments made to its employees but not paid to the DCT in accordance with Bobos Engineering's obligations under subdiv 16-B in Sch 1 to the TAA 1953 in the sum of $408,095.71. 28 On or about 26 August 2014 Mr Bobos telephoned the ATO. Mr Bobos recalls that he had a conversation to the following effect with an officer at the ATO called Rakesh (as written): Mr Bobos: hi rakesh I have been speaking to the collections officer in great depth and sent a plan to repay the debt in regards to directors penalty notice I received it and within the 21 days. We have agreed that Bobos eng will be able to pay this amount when we get judgment or make a settlement from court proceeding we have commence with crystal mining Rakesh: you need to send me a letter about this Mr Bobos: ok I will draft a letter with updates Rakesh: ok 29 The notes made in the ATO's client relationship management system of that conversation provide: Nicholas Bobos called regarding the summons issued to him. Client was served with a summons on the 31/07/2014. Client has said that he is involved in a legal action case against a mining company that owes money for the work done by the client Client has sent information regarding the issue 1-5BKL0QZ dated 05/03/2014 Client has advised that his circumstances haven't changed and he is preparing evidence which is going to be presented in the court on Friday Client was going to send the information into the ATO after it was lodged to the courts Advised client to send in letter advising his circumstances and details what steps are being taken to address the debt (original emphasis.) 30 On 27 August 2014 Mr Bobos sent a letter by facsimile on Bobos Engineering letterhead to the ATO (August 2014 Letter) in which, among other things, he referred to the statement of claim which he said he received on 31 July 2014, informed the ATO that as at that date Bobos Engineering could not pay the debt in full, referred to an earlier letter sent to the ATO, informed the ATO that "Bobos filed a technology and construction statement in the Supreme Court of New South Wales on 14 of February 2014 regarding disputes in the contract with Cristal mining" and explained the status of that and other claims against Cristal Mining. The August 2014 letter concluded as follows: I am asking for consideration to enable me to complete the following clams and disputes I believe by the end of next month Cristal will be in a position to negotiate a settlement price to close off this matter. Considering the amount offered to Boss, we would accept Thanking you for your consideration, 31 According to Mr Bobos the ATO did not respond to the August 2014 Letter causing him to believe that the proposal in it had been accepted by the DCT. 32 Mr Bobos did not file a defence in the District Court Proceeding and on 25 September 2014 default judgment in the sum of $421,727.09 was entered in favour of the DCT (Default Judgment). 33 It was not until late October 2014 after the statement of claim had, according to Mr Bobos, expired and he received the Default Judgment that he became aware that the proposal in the August 2014 Letter had been rejected. According to Mr Bobos, had the ATO responded in a timely fashion, he would have had adequate time to file a defence in the District Court Proceeding. 34 On receipt of the Default Judgment Mr Bobos contacted the ATO and had a conversation with a person called Sef to the following effect: Mr Bobos: Hi Sef, I am calling about the letter I just received reference number 42347335. I wasn't made aware that an application for judgment was going ahead. Sef: You need to arrange a payment plan to pay the debt. Mr Bobos: I have sent letters regarding this debt and plans for Bobos Engineering to repay the debt previously. Sef: When can Bobos engineering pay the debt. Mr Bobos: I have started court proceedings with one of our clients that owe us money for a major project we need some time for the court proceedings then Bobos engineering could pay the debt. Sef: You will need to keep us updated on when you can make a payment. Mr Bobos: Ok.

Bobos Engineering 35 On 13 January 2015 Elizabeth Shaw, Significant Debt Management, ATO, sent an email to Mr Bobos which included: Thank you for discussing the company debt with me today. As discussed the current debt owing for the company - Bobos Engineering Australia Pty Ltd is $1,263,201.83 as at 13 January 2015 and Super Guarantee debt of $152,619.29. Boss Constructions (NSW) Pty Ltd is $24,493.26 as at 13 January 2015. A Bankruptcy Notice has been issued and served upon you personally for the amount of $425,021.96 however there is a further $371,502.00 PAYG Withholding amount which I will be issuing Director Penalty Notice as director of Bobos Engineering Australia Pty Ltd, therefore increasing your personal liability to approx. $796,523.96. To make a decision on acceptance of another payment proposal and to fully understand your circumstances, current financial situation and steps you have taken to pay your tax debt, I will need the following information by COB Tuesday 20/01/2015. (original emphasis.) In cross-examination Ms Crump said that this email concerned Bobos Engineering's total debt to the ATO which includes the Penalty Notice liability. 36 In response, Mr Bobos sent a letter dated 12 February 2015 on Bobos Engineering letterhead to the ATO (February 2015 Letter) which was signed by Mr Bobos as "proprietor", Bobos Engineering and Boss Constructions and headed "[r]egarding Bobos Engineering Australia Pty Ltd, Nick Bobos & associated entities and the Australian Taxation Office (ATO)". Under the heading "summary" the February 2015 Letter provided: Bobos Engineering Australia Pty Ltd is currently indebted to the ATO for $1,415,820. The company's director Nick Bobos has been made personally liable as a result of non-compliance. Set out hereunder is a proposal including a payment arrangement to repay the ATO's outstanding debt. The payment arrangement incorporates payments over time plus the offering of security over assets to secure the repayment of a part of the ATO's debt. 37 The February 2015 Letter included a proposal for payment of the outstanding debt said to be "submitted by" Bobos Engineering and "associated entities". It included the following under the sub-heading "payment program": The Company undertakes to make the following payments in reduction of the outstanding debt: ~$1,415,820 Bobos Engineering Australia Pty Ltd would like to offer to repay their debt to ATO by way of $5K per month for a period of 6 months and then increasing the payment by $5000 at six monthly intervals. These payments to be made on the 5th of every month commencing on acceptance of this payment proposal. (original emphasis.) The amount referred to, which was the subject of the payment proposal, clearly equated to Bobos Engineering's liability. It far exceeded the amount claimed in the Penalty Notice. The only inference open is that this was a proposal to repay Bobos Engineering's debt then owed to the ATO. 38 On or about 16 February 2015 the DCT accepted the payment plan proposed in the February 2015 Letter for Bobos Engineering's outstanding taxation liabilities, which included liability for unremitted PAYG withholding amounts. In her email dated 16 February 2015 addressed to Mr Bobos, Ms Shaw wrote: As per out discussion today, I am pleased to inform you that I have accepted the payment plan put forward for Bobos Engineering Australia Pty Ltd without actioning on the securities. As discussed however, should the arrangement default due to a payment arrangement not being met and/or current lodgements are not lodged or paid in full, then I will continue with security on those properties. … Regarding Boss Constructions (NSW) Pty Ltd - there is currently a debt owing of $24,644.18 as at 16 February 2015 and outstanding BAS for the period September 2014 which was due for payment and lodgement on 28 October 2014. Can you please give me an indication as to when this will be lodged and the amount outstanding will be paid? This is not part of the arrangement currently in place. (underlining in original, emphasis added.) 39 By letter dated 17 February 2015 addressed to Bobos Engineering, among other things, the DCT set out the conditions of the arrangement for payment of Bobos Engineering's outstanding account by instalments. They were that: - Payments must be made as detailed in the schedule below - All future lodgment obligations must be met by the due dates - All future payment obligations must be made by the due dates - Contact must be made with this office prior to 5 August 2017, if you are unable to pay the final instalment in full. 40 On or about 23 February 2015 Bobos Engineering lodged its January Activity Statement. On the basis of her review of the ATO system records, Ms Crump says that Mr Bobos failed to pay the amount due recorded in that statement which caused a default in the payment arrangement referred to at [36]-[39] above. 41 On 23 March 2015 Bobos Engineering went into voluntary administration. 42 On or about 22 April 2015 the Supreme Court of New South Wales made an order for the winding up of Bobos Engineering. The DCT was a supporting creditor for the amount then owing by Bobos Engineering of the PAYG Withholding Amount on that application. 43 On or about 3 September 2015 the DCT lodged a proof of debt with the liquidators of Bobos Engineering for "a Running Balance Account deficit debt in respect of BAS amounts and Superannuation Guarantee Charge" (Proof of Debt) particularised as follows: Consideration Amount $ RBA DEFICIT DEBTS Running Balance Account deficit debt in respect of BAS amounts as at 23 March 2015 1,412,970.88 SUPERANNUATION GUARANTEE CHARGE Superannuation guarantee charge for the period from 1 September 2002 to 31 December 2014 1,759,860.49 GRAND TOTAL 3,172,831.37

44 In their report to creditors dated 7 August 2017 (Liquidators' Report) the liquidators of Bobos Engineering stated under the heading "Estimated return to creditors" that, after the settlement with Cristal Mining, they were in a position to pay a dividend to priority creditors, namely claims for employee entitlements outstanding as at the date of appointment. This included a claim for unpaid superannuation in the amount of $375,027.56. By way of further explanation of that item the Liquidators' Report included: In August 2015, the ATO lodged a proof of debt on behalf of employees claiming arrears of superannuation totalling $1,756,860. Following a comprehensive investigation, the Liquidators determined that the amount claimed by the ATO was incorrect, being substantially overstated. Over an extended period of time the Liquidators attended to the ATO's requests for further and better particulars substantiating the Company's outstanding superannuation obligations. Notwithstanding the attempts made by the Liquidators and the information provided substantiating the correct amount, the ATO were not prepared to amend their claim against the Company. In this scenario, the Liquidators were left with no alternative but to adjudicate the ATO's proof of debt in accordance with the relevant provisions of the Corporations Act. In December 2016, the Liquidators formally adjudicated the ATO's proof of debt by admitting it for the amount of $375,027 and rejecting it to the extent of $1,384,833. The Liquidators adjudication of the proof of debt was not challenged by the ATO in accordance with the timeframes imposed by the Corporations Act. 45 The Liquidators' Report also noted that the liquidators did not expect to pay a dividend to unsecured creditors.

The Bankruptcy Notice 46 On 30 July 2015 Ms Shaw sent an email to Mr Bobos which, in relation to Mr Bobos' outstanding liability to the ATO, included: Thank you for sending me this information and our discussion this afternoon regarding your debt outstanding. As discussed, your current personal liability owing for Director Penalty liabilities for Bobos Engineering Australia Pty Ltd is $403,095.71. As mentioned to you this afternoon, I don't think that we had entered Bankruptcy against you however, we have filed and served a Bankruptcy Notice on you back in November 2014, this however is now considered expired as we have 6 months from date of service to file for Creditors Petition and as this was not done another Bankruptcy Notice will need to be issued against you should the ATO wish to continue this recovery path. As you mentioned, you are requesting the ATO wait "another 6 months" before payments are requested or made, and this is not possible. We need some payments to be made towards this debt to start reducing the amount owing. I understand that the Liquidator may have some monies available and you have a mediation coming up with a major contractor, but we are unable to wait for these events to materialise. Therefore, to stop any further legal recovery action being taken against you personally we will need a proposal to repay the debt owing of $403,095.71. As discussed I would be happy to look at an interim arrangement for 6 months to allow for the above events to be realised. 47 Mr Bobos responded by email dated 10 August 2015 which included: Hi Liz Thank you for your email. Payment proposal Nick Bobos I would be able to pay $500 pm for the next 6 months Total of 3 k this would give me time to get the new business going *Then reviewed and payments of $2500 min for 24months Total 60 k *Then a further review and increase to a min of $5000 pm for 24months Total of 120 k *Then a further review to ether payout or continual with a more suitable payment plan (if business is good I would expect I would be able to pay this out buy this stage) (original emphasis.) 48 Mr Bobos' proposal for repayment of his personal liability was rejected by Ms Shaw in her email dated 11 August 2015 because of "the timeframe in which it would take to address [Mr Bobos's] personal liability for [Bobos Engineering] and the non-compliance of [Mr Bobo's] new company [Boss Constructions] moving forward". Ms Shaw continued: As we have discussed it is IMPERATIVE that Boss Constructions (NSW) Pty Ltd maintains their ongoing taxation obligations to show that they are viable and able to sustain a further arrangement and ongoing obligations, at this stage your company is not showing that this is possible. Therefore, I am going to give you a chance to show that the company is viable, I will agree to the arrangements for 3 months only this will ensure that the current debt owing of $13,082.32 is paid in full and the outstanding lodgements are to be lodged/paid immediately. Once lodgement has been made and should the debt be increased then I will revisit the arrangement but I will only allow 3 months to get this company in order. Should you default on any of the payments then you will leave me no option then to continue to prepare and issue a Bankruptcy Notice against you personally for Director Penalty notices for Bobos Engineering Australia Pty ltd (In Liq) for the amount of $403,095.71 without further notice. … At this stage I am not taking any action on the personal debt owing until you get Boss Constructions (NSW) Pty Ltd sorted which we are allowing 3 months only. (original emphasis.) 49 On or about 9 October 2015 bankruptcy notice BN 185263 was issued to Mr Bobos at the request of the DCT by the Official Receiver (First Bankruptcy Notice). 50 On 7 April 2016 orders were made by consent in proceeding NSD1400/2015 setting aside the First Bankruptcy Notice. These orders were made because, as set out at [48] above, on 11 August 2015 the DCT had undertaken to Mr Bobos not to enforce the Default Judgment for a period of three months, ie not before 11 November 2015. 51 On 19 August 2016 the Bankruptcy Notice was issued by the Official Receiver. The amount claimed in the Bankruptcy Notice is made up as follows:

1. Amount as per the attached final judgment/s or final order/s (note A) $421,727.09
2. Add legal costs (note B) $0.00
3. Add interest accrued since date of judgment/s or order/s (note C) $62,752.45
4. Sub total (1+2+3) $484,479.54
5. Less payments made and/or credit allowed since judgment/s or order/s $16,800.00
6. TOTAL DEBT AMOUNT (4 - 5) $467,679.54

The "attached final judgment/s or final order/s" referred to in item 1 is the Default Judgment. 52 The Substituted Service Orders relevantly included that: 1. Service of Bankruptcy Notice No. BN 196271 of 2016 issued on 19 August 2016 and addressed to Nicholas Bobos (the Respondent) together with a sealed copy of this order and extension of the Bankruptcy Notice to be effected by the following means: (a) By sending by pre-paid ordinary post addressed to the Respondent at 674 Blende Street, Broken Hill, NSW 2880; (b) By sending by pre-paid ordinary post addressed to the Respondent at 184 Gaffney Street, Broken Hill NSW 2880; (c) By sending the Documents by Email to the Respondent at 'nick@bossconstructions.com.au'; and (d) By sending a text (sms) message to the Respondent on mobile phone number ['XXXX XXX] 204' notifying him that the Bankruptcy Notice has been sent by post and email, and providing the contact details of Kelly Minerds. 2. Service in accordance with this order shall be deemed good and sufficient service of the Bankruptcy Notice on the Respondent. 3. The Bankruptcy Notice shall be deemed to be served on the Respondent on 28 April 2017. 4. The Bankruptcy Notice be amended by deleting the following words in paragraph 1 on page 2 of the notice "after service on you of the Bankruptcy Notice" and substituting "after 28 April 2017". 5. The Applicant lodge an appropriate application with the Official Receiver to make the amendments to the Bankruptcy Notice required by Order 4. 6. A copy of the amended Bankruptcy Notice issued by the Official Receiver pursuant to Order 5 and served pursuant to Order 1 is to be annexed to any affidavit proving that service. 53 Ms Minerds gave evidence that on 20 April 2017: (1) at 4.19 pm she placed a covering letter addressed to Mr Bobos dated 20 April 2017, the Bankruptcy Notice, judgment made on 24 November 2014, a document titled "extension of time for service of a bankruptcy notice" dated 14 February 2017 and the Substituted Service Orders (collectively Documents) into a pre-paid post envelope addressed to Mr Bobos at 674 Blende Street, Broken Hill, NSW 2880 which she posted by placing the envelope into the Australia Post mailbox located in the World Square shopping complex near the corner of Pitt and Goulburn Streets, Sydney, New South Wales; (2) at 4.19 pm she placed the Documents into a pre-paid envelope addressed to Mr Bobos at 184 Gaffney Street, Broken Hill, NSW 2880 which she posted by placing the envelope into the Australia Post mailbox located in the World Square shopping complex near the corner of Pitt and Goulburn Streets, Sydney, New South Wales; (3) at 4.57 pm she sent an email to Mr Bobos at nick@bossconstruction.com.au attaching a copy of the Documents; (4) at 5.03 pm she sent a text message to the telephone number included in the Substituted Service Orders notifying Mr Bobos that "the ATO has served court documents to you by post and by email" and providing her telephone number; and (5) after noticing that there was a typographical error in relation to Mr Bobos' mobile telephone number, at 5.03 pm she sent a text message to telephone number XXXX XXX 240 notifying Mr Bobos that "the ATO has served court documents to you by post and by email" and providing her telephone number. 54 Ms Minerds explained that the ATO has an internal system, accessible via its computer system, that allows its officers to send text messages. Once an officer presses send on the message, the system sends an auto response which records the message that was sent and to whom. Two emails generated by that system were in evidence, one for each of the text messages referred to in [53(4)] and [53(5)] above. 55 As at 18 May 2017 Mr Bobos had been working on a project in Sydney over a period of 12 months, and only returned to his home in Broken Hill on a few occasions. On 8 May 2017 he returned to his office in Broken Hill and found two envelopes, one addressed to his address and the other addressed to his partner's house. On 9 May 2017 he opened the envelopes and found the Bankruptcy Notice with the Substituted Service Orders attached to it. 56 On 9 May 2017 Mr Bobos also checked his emails and found Ms Minerds' email dated 20 April 2017. Mr Bobos explained that when his desktop computer email gets full, the emails do not go to his phone. Thus when he is on site he uses his laptop computer projects email address, which is different to the address included in the Substituted Service Orders. Mr Bobos said, had he received the text message while he was in Sydney, he could have organised for the email to be forwarded to him with the letters and could have consulted a lawyer while there.

Application to set aside the Default Judgment 57 On 18 May 2017 Mr Bobos filed an application to set aside the Default Judgment. On 5 February 2018 Neilson DCJ dismissed that application with costs: see Deputy Commissioner of Taxation v Bobos [2018] NSWDC 34 (District Court Judgment). 58 Mr Bobos sought leave to appeal from the District Court Judgment in the New South Wales Court of Appeal (Court of Appeal). On 4 October 2018 that court dismissed the application for leave to appeal: see Bobos v Deputy Commissioner of Taxation [2018] NSWCA 221 (CA Judgment).

STATUTORY framework 59 Section 41(1) of the Bankruptcy Act 1966 (Cth) (Act) provides that an Official Receiver may issue a bankruptcy notice on the application of a creditor where, relevantly, the creditor has obtained a final judgment or order of the kind described in s 40(1)(g) and is for an amount of at least $5,000. Section 40(1)(g) provides that a debtor commits an act of bankruptcy: (g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not: (i) where the notice was served in Australia - within the time specified in the notice; or (ii) where the notice was served elsewhere - within the time fixed for the purpose by the order giving leave to effect the service; comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained; 60 For completeness it is convenient to note s 41(6A) of the Act which relevantly provides that, where before the expiration of the time fixed for compliance with the requirements of a bankruptcy notice an application has been made to the court to set it aside, the court may, subject to s 41(6C), extend the time for compliance with the Bankruptcy Notice. In this case orders have been made pursuant to s 41(6A) of the Act and, most relevantly, an order was made extending the time for compliance with the Bankruptcy Notice until 5.00 pm on the date that is 14 days after the date the Court delivers judgment on the Application.

Director penalty notices - TAA 1953 61 Relevant to one of the bases upon which Mr Bobos asserts that the Bankruptcy Notice should be set aside is the circumstances in which the Penalty Notice was issued. It is therefore of assistance to set out the relevant sections of the TAA 1953 which concern the issue of a penalty notice to the director of a company. 62 Part 2-5 of Sch 1 to the TAA 1953 concerns pay as you go (PAYG) withholding. Division 10 is a guide to Pt 2-5. Section 10-5, titled "Summary of withholding payments", provides that "payments and other transactions covered by PAYG withholding are called withholding payments". They are summarised in the table included in s 10-5(1) and include "a payment of salary etc. to an employee". 63 Division 12, also in Pt 2-5 of Sch 1, is titled "Payments from which amounts must be withheld". It includes s 12-35 which provides that: An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). 64 Division 16, which again is found in Pt 2.5 of Sch 1, is titled "Payer's obligations and rights" and, among other things, sets out the obligations and rights of an entity required to withhold an amount under Div 12. Relevantly: (1) section 16-5 provides that if an entity is required to withhold an amount from a payment, the entity must do so when making the payment; (2) section 16-20(1) provides that an entity that withholds an amount as required by Div 12 is discharged from all liability to pay or account for that amount to any entity except the Commissioner; and (3) section 16-70(1) provides that an entity that withholds an amount under Div 12 must pay the amount to the Commissioner in accordance with subdiv 16-B. 65 Division 269 of Pt 4-15 of Sch 1 to the TAA 1953 concerns penalties for directors of non-complying companies. Section 269-5 provides that the object of Div 269 is to ensure that a company either meets its obligations under, relevantly, subdiv 16-B or goes promptly into voluntary administration under the Corporations Act or into liquidation. Section 269-15 relevantly provides: (1) The directors (within the meaning of the Corporations Act 2001) of the company (from time to time) on or after the initial day must cause the company to comply with its obligation. (2) The directors of the company (from time to time) continue to be under their obligation until: (a) the company complies with its obligation; or (b) an administrator of the company is appointed under section 436A, 436B or 436C of the Corporations Act 2001; or (c) the company begins to be wound up (within the meaning of that Act). … 66 Section 269-20 is titled "Penalty" and relevantly provides: (1) You are liable to pay to the Commissioner a penalty if: (a) at the end of the due day, the directors of the company are still under an obligation under section 269?15; and (b) you were under that obligation at or before that time (because you were a director). (2) The penalty is due and payable at the end of the due day. … (5) The amount of a penalty under this section is equal to the unpaid amount of the company's liability under its obligation. (notes omitted.) 67 Section 269-25(1) provides that the Commissioner cannot commence proceedings to recover a penalty payable under the subdiv 269-B until the end of 21 days after he or she gives the director a written notice under the section. Section 296-30(1) provides that, subject to subs (2), a penalty is remitted if the director stops being under the relevant obligation under s 269-15 before the Commissioner gives a penalty notice under s 269-25 or within 21 days after the Commissioner gives a penalty notice under that section. 68 Section 269-35 sets out the defences available to a director. Mr Bobos relies on those set out in s 269-35(1) and (2) which he says were available to him and which provide: Illness (1) You are not liable to a penalty under this Division if, because of illness or for some other good reason, it would have been unreasonable to expect you to take part, and you did not take part, in the management of the company at any time when: (a) you were a director of the company; and (b) the directors were under the relevant obligations under subsection 269-15(1). All reasonable steps (2) You are not liable to a penalty under this Division if: (a) you took all reasonable steps to ensure that one of the following happened: (i) the directors caused the company to comply with its obligation; (ii) the directors caused an administrator of the company to be appointed under section 436A, 436B or 436C of the Corporations Act 2001; (iii) the directors caused the company to begin to be wound up (within the meaning of that Act); or (b) there were no reasonable steps you could have taken to ensure that any of those things happened. … 69 Subdivision 269-C is titled "Discharging liabilities" and includes s 269-40 which relevantly provides: Liabilities (1) This section applies to the following liabilities: (a) the liability of the company under its obligation referred to in section 269?10; (b) the liability of each director (or former director) to pay a penalty under this Division in relation to the liability of the company referred to in paragraph (a); (c) a liability under a judgment, to the extent that it is based on a liability referred to in paragraph (a) or (b). Discharging one liability discharges other liabilities (2) If an amount is paid or applied at a particular time towards discharging one of the liabilities, each of the other liabilities in existence at that time is discharged to the extent of the same amount.

consideration 70 Having regard to the Application and Mr Bobos' submissions, the grounds upon which Mr Bobos seeks to have the Bankruptcy Notice set aside fall into the following categories: (1) there was not proper service of the Bankruptcy Notice; (2) the debt the subject of the Bankruptcy Notice is not owing and the Court should go behind the Default Judgment; (3) the Bankruptcy Notice is an abuse of process; and (4) there are exceptional circumstances which would lead the Court to set aside the Bankruptcy Notice. 71 Mr Bobos provided detailed written submissions and made extensive oral submissions. Mr Bobos was not legally represented and, although he did the best he could, his submissions were to a degree repetitious and at times lacked clarity. In addressing each of the bases set out above I have attempted to summarise Mr Bobos' submissions insofar as they are relevant to the grounds relied on by him.

Service of the Bankruptcy Notice 72 Mr Bobos submitted that the Bankruptcy Notice had not been served in accordance with the Substituted Service Orders because: (1) the DCT had failed to send the text message in accordance with those Orders and no message was received on 20 April 2017; (2) Ms Minerds sent the email to "nick@bossconstruction.com.au" and not "nick@bossconstructions.com.au" (emphasis added) as specified in the Substituted Service Orders; and (3) the text message from Ms Minerds did not notify him that the Bankruptcy Notice had been served by post and by email but referred to "court documents". 73 Mr Bobos submitted that as a result of the failure to serve in accordance with the Substituted Service Orders he did not have 21 days in which to file an application to set aside the Bankruptcy Notice and, had he received a text message, he would have had time to properly respond. Mr Bobos said that he had to put the Application on at short notice, leaving open the possibility that he has missed "valuable submissions or defences" and that he had less than half the time necessary to properly complete the Application. He contended that if he attempted to amend after the expiry of the 21 day period, the DCT would object. 74 Mr Bobos submitted that as the Bankruptcy Notice had not been served in accordance with the Substituted Service Orders, because he did not receive the text message and the Bankruptcy Notice was not emailed to nick@bossconstructions.com.au as required by those Orders, time had not started to run. 75 I am satisfied, based on the evidence before me, that service of the Bankruptcy Notice and the other documents referred to in the Substituted Service Orders was effected in accordance with the Substituted Service Orders. 76 Mr Bobos raises three specific issues about service. I will address each one. 77 First, Mr Bobos asserts that he did not receive the text message referred to in the Substituted Service Orders. Putting the issue of receipt to one side, Ms Minerds sent the text message as required by Order 1(d) of the Substituted Service Orders to the mobile telephone number specified therein. To that end there was compliance with that order. 78 However, Ms Minerds then went one step further. Upon realising that there was a typographical error in the mobile telephone number included in Order 1(d) of the Substituted Service Orders she sent the same text message a second time but to the mobile telephone number which, I infer, was the correct telephone number for Mr Bobos. That inference is reinforced by the fact that the mobile telephone number on the cover page of the affidavit sworn by Mr Bobos on 18 May 2017 and filed in this proceeding is that latter number. 79 Mr Bobos maintains that he did not receive the text message. That is regrettable but it does not lead to the conclusion contended for by Mr Bobos that it was not sent, that there has not been compliance with the Substituted Service Orders or that the Bankruptcy Notice was not served. In ANZ Banking Group Limited, in the matter of James v James [2016] FCA 332 an issue before the court was whether the bankruptcy notice issued at the request of the Australian and New Zealand Banking Group Limited to Mr James had been served on him in accordance with the requirements of the Act and the Bankruptcy Regulations 1996 (Cth) (Bankruptcy Regulations). At [41], after referring to and accepting the evidence given on behalf of Mr James that the bankruptcy notice issued to Mr James had not come to his attention, Katzmann J said: But even if Mr James did not receive the bankruptcy notice and accompanying documents that does not necessarily mean that he was not served. It is possible that the envelope was caught up with junk mail and inadvertently discarded. In any event, the question is not whether he received the documents but whether they were served upon him in accordance with the Regulations. As Spender J observed in Repatriation Commission v Gordon (1990) 26 FCR 569 at 578, "[n]on-receipt is not the same as non-delivery'. See, too, Perpetual Nominees v Masri Apartments (2004) 183 FLR 142; [2004] NSWSC 500 at [23]. 80 Mr Bobos says that, had he received the text message, he would have been aware of the Bankruptcy Notice at an earlier date and would have had the benefit of the whole of the 21 day period to file the Application. He suggested that with the additional time he would have included other grounds in and spent more time on the Application. That may be so. However, it is not a matter that displaces the conclusion I have reached about service and dispatch of a text message as required by Order 1(d) of the Substituted Service Orders. In any event, it is not clear what further grounds or arguments Mr Bobos would have raised. In the time between the date of lodging the Application and the first day of the hearing of the Application, a period of 17 months, Mr Bobos took no steps to amend the Application or to raise any additional grounds. He contended that he did not do so because he would have been met with opposition from the DCT. But whether that is so and the outcome of any application to amend is no more than speculation on Mr Bobos' part. Even at the hearing which, contrary to initial expectations, took up three days over an extended period of five months due to Court availability, Mr Bobos was unable to articulate any further grounds that he would have raised had he had the full 21 days to prepare the Application. 81 In any event, despite not having received the text message, Mr Bobos was aware of the Bankruptcy Notice. His evidence is that he received the Documents, including the Bankruptcy Notice, by post and by email. That they only came to his attention on 9 May 2017 does not mean that service was not effected as required by the Substituted Service Orders. Indeed, having become aware of the Bankruptcy Notice Mr Bobos lodged the Application and an affidavit in support within the 21 day period specified in the Bankruptcy Notice, which ended on 19 May 2017. 82 The second issue also concerns the text message. Although Mr Bobos contends he did not receive it, he is critical of the message included in the text message, noting that it did not refer to the Bankruptcy Notice being sent to him but to "court documents". Similarly, Mr Bobos took issue with the wording of the covering email sent to nick@bossconstruction.com.au which stated "please see the documents attached". In relation to the text message, a bankruptcy notice is not a court document, although the enclosed Substituted Service Order and the minute of judgment, which had also been sent to Mr Bobos, were such documents. That said, I would not conclude that, because of the content of the message, there was a failure to comply with the Substituted Service Orders. The message drew attention to the fact that documents had been sent to Mr Bobos and their description as "court documents" was not misleading and in no way understated the importance of the material that had been despatched. 83 In relation to the email, the subject line of the email was "Deputy Commissioner of Taxation v Nicholas Bobos: SYG580/2017" and the attachments were described as "20170420 - BN and Supporting Docs.pdf". That is, the Documents were attached to the email. Once again, the covering email does not understate the importance of the Documents which were attached to it nor mislead the recipient about the contents of the email. 84 The final issue raised by Mr Bobos is that the email sent to nick@bossconstruction.com.au was not sent in accordance with Order 1(c) of the Substituted Service Orders because of the difference in spelling of "construction" in the email address used by Ms Minerds. Given Mr Bobos' evidence that he received the email addressed to nick@bosscontruction.com.au, I would infer that the additional "s" in the address included in Order 1(c) of the Substituted Service Orders was incorrect. In my opinion, in those circumstances, sending the email to the address specified in Order 1(c) but omitting the "s" at the end of "constructions" as it appeared in that Order does not mean that there was non-compliance with the Substituted Service Orders. 85 The DCT submitted that even if there had not been service in accordance with the Substituted Service Orders, service was validly effected in accordance with reg 16.01 of the Bankruptcy Regulations. Regulation 16.01 relevantly provides: (1) Unless the contrary intention appears, where a document is required or permitted by the Act or these Regulations to be given or sent to, or served on, a person (other than a person mentioned in regulation 16.02), the document may be: … (e) sent by facsimile transmission or another mode of electronic transmission: (i) to a facility maintained by the person for receipt of electronically transmitted documents; or (ii) in such a manner (for example, by electronic mail) that the document should, in the ordinary course of events, be received by the person. (2) A document given or sent to, or served on, a person in accordance with subregulation (1) is taken, in the absence of proof to the contrary, to have been received by, or served on, the person: (a) in the case of service in accordance with paragraph (1)(a) or (b)--when the document would, in the due course of post or business practice, as the case requires, be delivered to the person's address or document exchange facility; and (b) in the case of service in accordance with paragraph (1)(c), (d) or (e)--when the document is left, delivered or transmitted, as the case requires. 86 In Skalkos v T&S Recoveries Pty Ltd (2004) 141 FCR 107 (Skalkos), as here, the creditor had obtained an order for substituted service of the bankruptcy notice on the debtor. The issues before the primary judge included whether the effect of the order for substituted service precluded the creditor from effecting service in any other way permitted by law and, if it did not, whether service could be effected under reg 16.01 of the Bankruptcy Regulations. The primary judge concluded that the order for substituted service was permissive and did not exclude other available methods of service and that there was nothing in the Act or the Bankruptcy Regulations that indicated a contrary intention to the application of reg 16.01 to bankruptcy notices. 87 On appeal one of the issues before a Full Court of this Court (Sundberg, Finkelstein and Hely JJ) was whether the primary judge erred in finding that, in that case, service by prepaid post to the last known address of the debtor was adequate service of a bankruptcy notice. 88 At [29] the Full Court said that a "contrary intention" for the purposes of reg 16.01 must appear from the Act or the Bankruptcy Regulations or from some other legislation and noted that the fact that in some cases reg 16.01 can produce harsh results does not constitute a contrary intention for the purposes of that regulation. At [30]-[31] their Honours continued as follows: 30 The appellant also contended that the order for substituted service itself constituted a contrary intention for the purposes of reg 16.01. Assuming the Court has power to preclude reliance on the modes of service prescribed by reg 16 (perhaps under s 309(2) of the Act), an order for substituted service will constitute a contrary intention only if it evinces an intention that it is to operate either to the exclusion of reg 16 or to the exclusion of any other mode of service. We agree with his Honour that the substituted service order is permissive in terms, prescribing a method "by which service may be effected". It is silent about service otherwise than in accordance with its terms. The order does not constitute a contrary intention for the purposes of reg 16.01(1). 31 The mode of service for which reg 16.01(1)(a) provides was available to the respondent. We agree with Tamberlin J's observation in Re Silvas (a Bankrupt) that a bankruptcy notice can be served under the regulation. We agree with the distinction between a petition and a notice drawn in CSR Ltd v Barillaro. See also Drake v Stanton [1999] FCA 1635 where Tamberlin J proceeded on the basis that the regulation was available for the service of a bankruptcy notice. However, in that case the debtor does not appear to have contested the issue. The question then is whether the notice was sent by post to the appellant's last-known address. 89 Thus service under reg 16.01 of the Bankruptcy Regulations is not necessarily precluded by an order for substituted service. In those circumstances, the DCT submitted that there has been service in accordance with reg 16.01(1)(e)(ii) which was a permitted mode of service and an alternative to the Substituted Service Orders. I understand the DCT's submission to be that the Substituted Service Orders do not constitute a contrary intention for the purposes of reg 16.01 as was the case in Skalkos. In Skalkos the substituted service orders made by the registrar provided that service of the relevant bankruptcy notice on Mr Skalkos "may be effected" by the method that then followed and were silent about service other than in accordance with their terms. In this case the language of the Substituted Service Order is different. Those orders do not include the permissive term "may"; they provide that service of the Bankruptcy Notice is "to be effected by the following means" and then set out the various methods; but they are otherwise silent on service other than in accordance with their terms. 90 Having regard to those factors, in my opinion the Substituted Service Orders do not evince or constitute a contrary intention for the purposes of reg 16.01(1) of the Bankruptcy Regulations. They are not framed in such a way that they can be taken to operate exclusively of and to exclude any other method of permitted service including service pursuant to reg 16.01. Accordingly I accept that service was, in the alternative, effected pursuant to reg 16.01 of the Bankruptcy Regulations. Given Mr Bobos' evidence that he received the Documents sent by email to nick@bobosconstruction.com.au, it is beyond dispute that they were sent in such a manner, and should be taken to have been received by Mr Bobos when transmitted.

Should the Court go behind the Default Judgment? 91 Mr Bobos submitted that the Court should go behind the Default Judgment and that there was no debt owing to the DCT. His submissions in that regard fell into a number of categories. 92 First, Mr Bobos submitted that his proposed defence to the District Court Proceeding has merit and that this Court would accept that to be so. He said that when assessing the merits of a defence the Court does need to look to the future and determine in the present if the defence will be successful and, on this basis, Mr Bobos contended that he has passed the first limb of the test. Mr Bobos submitted that the second limb of the test requires an explanation about the failure to file the defence. As to that Mr Bobos contended that there was agreement with the DCT, that he relied on the DCT's representations about the agreement and, in doing so, took no steps to file a defence. Mr Bobos also characterised this aspect of the ground as an "estoppel" argument. He said that because of the concluded agreement with the ATO, the DCT was precluded from seeking and entering judgment against him. 93 Secondly, Mr Bobos submitted that he had the defences available to him under s 269-35 of the TAA 1953 which he had made out for the following reasons: (1) in 2014 he suffered major mental health issues and traumatic stress which led to severe depression making it hard for him to fully understand the severity of the Penalty Notice whilst he was preoccupied with litigation between Bobos Engineering and Cristal Mining. Although in his written submissions, apart from his own evidence, Mr Bobos refers to four affidavits in support of this contention, only two affidavits concerning his health issues were in evidence: the affidavit of Alison Wayman and the "general affidavit" of Ms Flavel; (2) there was some other good reason, namely that Mr Bobos did not place Bobos Engineering into voluntary administration at the time of the Penalty Notice and allowed it to continue to trade to enable it to continue with the litigation against Cristal Mining and submit payment claims under the Building Construction Industry Security of Payment Act 1999 (NSW) (Security of Payment Act) to recover unpaid invoices to the value of $6m; and (3) he took reasonable steps: (a) first, by ensuring that Bobos Engineering complied with its obligations by entering into a payment arrangement with the ATO. Mr Bobos contended that the payment arrangement was accepted in conversations and by email, letters, payment slips and payments made by Bobos Engineering; and (b) secondly, by placing the company into external administration. In that regard Mr Bobos says that he communicated about the Penalty Notice with the ATO and was led to believe that an agreement had been reached to allow Bobos Engineering to continue to trade and not put the company into voluntary administration. 94 Thirdly, Mr Bobos submitted that the ATO was precluded from relying on the Penalty Notice as it did not challenge Bobos Engineering's liquidators' adjudication of its proof of debt which was rejected and eventually admitted, in part, for approximately $375,000. 95 Fourthly, Mr Bobos submitted that the Penalty Notice relates to Bobos Engineering's PAYG obligations, Bobos Engineering was in a payment arrangement at the time the Penalty Notice was issued and the ATO did not take payments of $27,936 into account. To that extent, Mr Bobos raises an issue in relation to the quantum of the Penalty Notice.

Legal principles 96 It was not in dispute that the Court has power to go behind a judgment the subject of a bankruptcy notice on an application to set the notice aside: see Nugawela v Deputy Commissioner of Taxation [2016] FCAFC 164 at [26]. 97 In Ramsay Health Care Australia Pty Ltd v Compton (2017) 261 CLR 132 the High Court considered the circumstances in which a court can go behind a judgment. In that case Ramsay Health Care Australia Pty Ltd (Ramsay) had obtained judgment against Mr Compton. It then had a bankruptcy notice issued and served on Mr Compton who did not comply with it. Ramsay presented a creditor's petition. Mr Compton filed a notice of grounds of opposition contending that no debt was owing and that the court should go behind the judgment upon which the creditor's petition was based. 98 The analysis undertaken by the majority (Kiefel CJ, Keane and Nettle JJ) commenced by referring to the decision in Corney v Brien (1951) 84 CLR 343. Their Honours then turned to consider the decision in Wren v Mahony (1972) 126 CLR 212 (Wren) noting the following at [42]-[44]: 42. In Wren v Mahoney, Barwick CJ, with whom Windeyer and Owen JJ agreed, said: "The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor's debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration." 43. There are good reasons why this statement should not be given the artificially narrow application urged on behalf of Ramsay. First, it is not correct to say that Wren v Mahoney involved a default judgment. In truth, it involved a default that resulted from the defendant's failure to plead a good defence, having chosen to defend the claim on a point of law that was resolved against him. The primary judge in bankruptcy declined to reconsider the resolution of the point of law; and the High Court held that the primary judge erred in failing to reconsider the point, which the High Court went on to uphold. 44. Secondly, Wren v Mahoney held that a Bankruptcy Court may go behind a judgment, notwithstanding that the judgment was obtained after a contested hearing. That can be seen by reference to the reasons of the dissentients, reasons that were necessarily rejected by the majority. (footnotes omitted.) 99 At [48] the majority observed that Wren had long been accepted as standing against the proposition advanced by Ramsay and referred to a decision of this Court in support of that proposition. 100 At [68]-[70] their Honours said: 68. For the purposes of s 52 of the Act, a judgment may usually be taken to be sufficient evidence of a debt in that a judgment against a debtor in favour of a creditor obtained after a trial is, generally speaking, a reliable indication of the true state of indebtedness as between creditor and debtor. Indeed, such a judgment can usually be expected to provide the most reliable statement of the debt humanly attainable because the ordinary processes of the adversarial system provide a practical guarantee of reliability. The testing of the relative merits of a claim and counterclaim under the rigours of adversarial litigation will usually establish the true state of accounts as between the parties to the proceedings. Accordingly, a Bankruptcy Court will usually have no occasion to investigate whether the judgment debt is a true reflection of the real debt. But where the merits of a claim and counterclaim have not been tested in adversarial litigation, a judgment debt will not have this practical guarantee of reliability. 69. In Petrie v Redmond, Latham CJ, with whom Rich and McTiernan JJ agreed, said that the Bankruptcy Court: "is entitled to go behind the judgment and inquire into the validity of the debt where there has been fraud, collusion or miscarriage of justice. … Also the court looks with suspicion on consent judgments and default judgments. … The Bankruptcy Court does not examine every judgment debt. Special circumstances must be established before it will do so. It is impossible to lay down any general rule." 70. The first two sentences of that passage were cited with evident approval by Dixon, Williams, Webb and Kitto JJ in Corney v Brien. The passage was explicitly concerned with consent judgments and default judgments. As a matter of practical experience, these are the sorts of cases in which third parties can be expected to be disadvantaged by the making of a sequestration order based on a judgment which was not the outcome of the rigorous processes of adversarial litigation. The same concern may also arise in a case where the judgment was obtained in circumstances which suggest a failure on the part of the judgment debtor to present his or her case on its merits in the litigation that led to the judgment.

Consideration 101 I turn then to first consider whether, in this case, there is sufficient reason to question whether there is a real debt behind the Default Judgment. 102 It is convenient to commence the analysis with a consideration of the Default Judgment itself. That was entered in September 2014 in circumstances where Mr Bobos had failed to file a defence in the District Court Proceeding. In May 2017 Mr Bobos filed an application to have the Default Judgment set aside which was heard by Neilson DCJ over two days. In his reasons Neilson DCJ noted that the primary consideration for the court on the application was whether there was an arguable defence. In relation to that part of the statement of claim seeking payment of the amount the subject of the Penalty Notice Neilson DCJ noted that Mr Bobos' proposed defence essentially raised two matters: first, that the ATO failed to allocate payments made by him to the correct account; and secondly, that there was a concluded agreement for Bobos Engineering to repay the debt and the DCT submitted a proof of debt to the liquidators of Bobos Engineering, thus holding them liable for the debt. 103 Judge Neilson referred to the March 2014 Proposal and the August 2014 Letter, both of which were in evidence before him. As to the March 2014 Proposal at [11] of his reasons his Honour said: It is clear from what I have quoted that this letter was written by the applicant in response to a letter of 11 February 2014, which is likely to have made a demand on the applicant for a director penalty, and have given him 21 days in which to pay the claim. It is also clear from what I have quoted, that the relief or benefit which the applicant sought was merely a period of indulgence, a deferral of the due date for the payment of the amount demanded. As is clear from what I have quoted, the applicant had been given 21 days from 11 February 2014, which probably amounts to about 3 March 2014. 104 In relation to the August 2014 Letter at [13] his Honour said of that letter that it "does not dispute any indebtedness" but "merely seeks further time in which to pay the claim, an accommodation". 105 At [14] his Honour concluded that no agreement had been reached between Mr Bobos and the ATO prior to entry of the Default Judgment and that there was never any protestation on the part of Mr Bobos that he was not indebted as alleged by the ATO. Rather, there were admissions that he was so indebted and the March 2014 Proposal and August 2014 Letter were no more than requests by Mr Bobos for further time in which to discharge his indebtedness. Judge Neilson found that nothing that occurred amounted to an agreement between Mr Bobos and the ATO pursuant to which the ATO agreed to forego its debt or was estopped from enforcing it. 106 Judge Neilson also considered the effect of the February 2015 Letter and the subsequent correspondence from the ATO. At [25] his Honour found that it was clear from the February 2015 Letter that Mr Bobos was aware that he was personally liable for the debts of Bobos Engineering and that there was nothing in the correspondence indicating that he was to be absolved of his personal liability arising from the default by Bobos Engineering or that the ATO had waived his liability. 107 At [28] of his reasons Neilson DCJ addressed Mr Bobos' submission based on the proof of debt lodged by the ATO in the liquidation of Bobos Engineering. His Honour noted that Mr Bobos' argument that the proof of debt amounted to some form of election by the ATO to pursue Bobos Engineering for debts owing to it, rather than Mr Bobos personally, was based on a misapprehension of the position. His Honour noted that Mr Bobos and Bobos Engineering had co-ordinate responsibility for the debt of Bobos Engineering and that insofar as Bobos Engineering might satisfy the debt it would reduce Mr Bobos' indebtedness and vice versa. 108 Commencing at [32] Neilson DCJ dealt with a number of other issues raised by Mr Bobos including that the ATO should have hypothecated payments made by Bobos Engineering to PAYG debts rather than to other debts, in particular those described by Mr Bobos as "BAS" payments. His Honour said in relation to that issue: 32 … The simple fact is that, according to the evidence of Ms Crump, which I have no hesitation in accepting, the principle applied by the ATO is that payments were assigned administratively by the ATO to the oldest debt owed by the taxpayer. Furthermore, how the ATO treats debts is a matter purely for it. I have earlier referred to the Taxation Administration Act 1953 by the acronym given to it in documentation, TAA. Section 8AAZL of the TAA provides in its first two subsections this: "(1) This Division sets out how the Commissioner must treat the following kinds of amount: (a) a payment the Commissioner receives in respect of a current or anticipated tax debt or tax debts of an entity; (b) a credit (including an excess non RBA credit) that an entity is entitled to under a taxation law; (c) an RBA surplus of an entity. (2) The Commissioner must treat each such amount using the method set out in section 8AAZLA or 8AAZLB (but not both)." A "RBA" means a running balance account established for a taxpayer under s 8AAZC. There is no dispute about that. The applicant had an RBA with the ATO. Section 8AAZLA is this: "(1) The Commissioner may, in the manner he or she determines, allocate the amount to an RBA of the entity or, if the entity is a member of an RBA group, to an RBA of another member of the group. (2) The Commissioner must then also apply the amount against the following kinds of debts (if there are any): (a) tax debts that have been allocated to that RBA; (b) general interest charged on such tax debts. (3) To the extent that the amount is not applied under subsection (2), it gives rise to an excess non-RBA credit in favour of the entity that: (a) is equal to the part of the amount that is not applied; (b) relates to the RBA to which the amount was allocated." Section 8AAZLB provides for the second method provided for in s 8AAZL but it is not applicable to the applicant or his associated companies. Section 8AAZLE contains a heading "Instructions to Commissioner not binding" and provides this: "In doing anything under this Division, the Commissioner is not required to take account of any instructions of any entity." 33 It is therefore completely irrelevant that the applicant wished to hypothecate payments to his PAYG liability but the Commissioner allocated the payment to some earlier outstanding liability that the applicant or one of his associated companies had. How the payment is dealt with by the ATO is a question for it in accordance with its policies and it is not subject to any direction by the taxpayer or any entity related to the taxpayer. 109 At [38] Neilson DCJ found that Mr Bobos had failed to establish a prima facie defence to the claims made in the DCT's statement of claim and that no bona fide or arguable ground of defence had been established nor was there any adequate explanation as to why Mr Bobos permitted judgment to be entered against him or why it took him over two and a half years to seek to set aside the Default Judgment. His Honour continued at [39]: He has, at all material times, admitted that the liability existed and it appears that only when pressed with what might be a third bankruptcy notice has he decided to try to set aside the default judgement entered regularly in this Court. … 110 As set out at [58] above, Mr Bobos sought leave to appeal and an extension of time for leave to appeal from the District Court Judgment in the Court of Appeal. In dismissing Mr Bobos' application, that court (Beazley P and Macfarlan JA) noted that the Default Judgment related primarily to Mr Bobos' liability as a director of Bobos Engineering in respect of income tax withheld from its employees but not remitted to the DCT. After referring to the reasons of Neilson DCJ, at [10] their Honours said that none of the points raised by Mr Bobos in support of his application for leave to appeal had any merit. They addressed the principal points as follows: (1) contrary to Mr Bobos' submission, the arrangement in the February 2015 Letter and the ATO's response did not purport to affect Mr Bobos' personal liability as distinct from that of Bobos Engineering. In any event, as the primary judge found, the arrangement ceased to have effect upon Bobos Engineering's default in making the payments; (2) while sympathetic to the claim by Mr Bobos that he has suffered depression since 2002, that condition is not an answer to the ATO's claim and would not have provided any defence under s 269-35(1) of the TAA 1953. Their Honours noted that for illness to attract the operation of that section, the illness has to have led to the director not taking part in the management of the company which was not the case for Mr Bobos; (3) for the reasons given by Neilson DCJ the ATO did not err in its allocation of payments made to it by Bobos Engineering or Mr Bobos; and (4) as was found by Neilson DCJ, there was nothing in the dealings between Mr Bobos and the ATO to support Mr Bobos' assertion that the ATO acted in such a way as to lead him to believe that it had agreed to allow Bobos Engineering to complete the litigation with a party to a construction contract with whom it was in dispute. 111 The Default Judgment was obtained because of Mr Bobos' failure to file a defence in the District Court Proceeding. It is not in dispute that Mr Bobos was aware of the District Court Proceeding before the entry of the Default Judgment, as evidenced by the August 2014 Letter (see [30] above). The DCT did not apply to enter judgment until approximately one month after receipt of that letter. 112 On his evidence, Mr Bobos was aware that the Default Judgment had been entered since at least late October 2014 when he said he received a letter dated 25 September 2014 notifying him of that fact. Despite that it was not until May 2017 that Mr Bobos filed an application in the District Court to set aside the Default Judgment. That application was heard over two days and Neilson DCJ delivered detailed reasons dismissing it. It is evident from those reasons that his Honour carefully considered Mr Bobos' proposed grounds of defence before dismissing the application. As set out above, Mr Bobos' application for leave to appeal from the District Court Judgment was unsuccessful. 113 In those circumstances, despite the fact that the Bankruptcy Notice is based on the Default Judgment, it cannot be said that Mr Bobos has been denied the opportunity to present his case. On the contrary the merits of his claims have been tested, albeit after entry of the Default Judgment, and have been the subject of the "rigorous processes of adversarial litigation". Nor is this a case where it could be said that there was any fraud or collusion which resulted in the obtaining of the Default Judgment. 114 I address two further matters raised by Mr Bobos by which Mr Bobos appears to challenge findings made by Neilson DCJ. 115 First, contrary to Mr Bobos' submissions, there was no concluded agreement for payment of the debt the subject of the Penalty Notice on the basis of which Mr Bobos was not required to file a defence in the District Court Proceeding. That argument was raised before and rejected by Neilson DCJ at [14], [15] and [17] of the District Court Judgment. I respectfully agree with his Honour's conclusion. There is no evidence to support the existence of any such agreement. 116 In the March 2014 Proposal, which was dated approximately 21 days after the Penalty Notice was sent, Mr Bobos, in effect, acknowledged that the amount claimed in the Penalty Notice was owing. He explained why that amount had not been paid and sought a deferment of enforcement action, pending which Bobos Engineering would continue to maintain the current payment arrangement of $27,936, as a minimum, on the seventh day of each month. On 9 April 2014 the ATO rejected the March 2014 Proposal. Mr Bobos relies on the August 2014 Letter to establish his "estoppel" ground. However, the August 2014 Letter, which was sent by Mr Bobos after receipt of the statement of claim filed in the District Court Proceeding, does not assert any agreement as contended for by Mr Bobos. Rather, in that letter Mr Bobos notes that Bobos Engineering is unable to pay the amount claimed as at that date and again seeks more time to pay. In those circumstances it could not be said that there was any agreement such that the DCT was precluded from entering judgment against him. 117 Similarly, Mr Bobos' contention that there was an agreement reached in February 2015, by reason of the ATO's acceptance of the proposal in the February 2015 Letter which was to repay the debts of Bobos Engineering, Boss Constructions and Mr Bobos personally, cannot succeed. This argument was addressed at [20]-[26] of the District Court Judgment. There Neilson DCJ found that Mr Bobos was aware that he was personally liable for the debts of Bobos Engineering and that nothing in the February 2015 Letter, or in the response from the ATO, indicated that Mr Bobos would be absolved of his personal liability based on a default of Bobos Engineering. Those findings were affirmed on appeal: see [11]-[12] of the CA Judgment. 118 As the evidence discloses, the agreement reached in February 2015 was between Bobos Engineering and the ATO for payment of Bobos Engineering's debts, there was no waiver of Mr Bobos' liability or transfer of it to Bobos Engineering. In any event, the agreement came to an end shortly after it was made when Bobos Engineering defaulted. Further, Mr Bobos' subsequent conduct after Bobos Engineering went into liquidation, as set out at [46]-[49] above, is entirely inconsistent with his contention that his personal liability was somehow waived by reason of the February payment arrangement or otherwise transferred to Bobos Engineering. 119 For those reasons, Mr Bobos has not established that there is sufficient reason to question whether there is a real debt behind the Default Judgment and I would decline to exercise my discretion to go behind the Default Judgment. 120 Notwithstanding that I turn to consider the other issues raised by Mr Bobos which he also contends would cause me to exercise my discretion to go behind the Default Judgment. 121 Mr Bobos relies on the availability of the defences under s 269-35 of the TAA 1953, some of which were raised by Mr Bobos on his application to set aside the Default Judgment and again before the Court of Appeal. 122 First, Mr Bobos says that he was ill in 2014 and he suffered major mental health issues and traumatic stress with led to severe depression making it hard for him to fully understand the severity of the Penalty Notice and relies on the defence in s 269-35(1) of the TAA 1953. Mr Bobos has provided evidence of his medical conditions in the period 2012 to August 2014. However, while I accept that he suffered from such conditions and was under some pressure, Mr Bobos has not made out the defence in s 269-35(1). As the Court of Appeal observed at [13] of the CA Judgment, for illness to attract the operation of s 269-35(1) of the TAA 1953 the illness must have led to the director not taking part in the management of the company at all relevant times. 123 The evidence before me is that Mr Bobos participated in the management of Bobos Engineering at the time he was under the obligation in s 269-15. Throughout 2013 and in 2014, as set out in the March 2014 Proposal, Mr Bobos took steps in his capacity as director of Bobos Engineering in relation to Bobos Engineering's contract with Cristal Mining as well as causing Bobos Engineering to seek out and obtain other work. It is apparent from the content of the March 2014 Proposal and other evidence before me that Mr Bobos was engaged in the management of Bobos Engineering. The evidence about Mr Bobos' health issues does not establish that his health concerns at the time meant that he could not and did not take part in the management of Bobos Engineering. 124 Further the defence in s 269-35(1) relying on illness can only succeed if the illness continued for the whole of the time the director was in office and the obligation to comply with s 269-15 continued: see Canty v Deputy Commissioner of Taxation (2005) 63 NSWLR 152 (Canty) at [48] in relation to a provision in substantially the same terms in the Income Tax Assessment Act 1936 (Cth) (ITAA). Mr Bobos has not established that his illness continued for the whole of the relevant period, being December 2012 to February 2014. That is, the evidence goes no higher than observations made by lay people who described his demeanour and the effect of his work pressures and evidence that he consulted a naturopath. There is no conclusive medical evidence that Mr Bobos was suffering from an illness for the whole of the relevant period. The medical certificate provided does not speak to the whole of the period and does not, in any event, provide sufficient detail about Mr Bobos' condition. 125 Secondly, Mr Bobos says that there was "some other good reason" under s 269-35(1) why it would have been unreasonable to expect him to take part, and he did not take part, in the management of Bobos Engineering at the relevant time. Mr Bobos said that the "other good reason" is that he did not place Bobos Engineering into voluntary administration at the time of the Penalty Notice and allowed it to continue to trade to enable it to continue its litigation against Cristal Mining and submit payment claims under the Security of Payment Act in order to recover unpaid invoices. 126 That defence cannot be made out. It requires that there is some other good reason why Mr Bobos did not take part in the management of Bobos Engineering. But the very reason he proffers for why he comes within the defence demonstrates that he did take part in its management. That is, he made the decision not to put Bobos Engineering into voluntary administration but to allow it to continue to trade so that it could continue to pursue recovery against Cristal Mining. 127 Thirdly, Mr Bobos said that pursuant to s 269-35(2) he took reasonable steps to ensure that Bobos Engineering complied with its obligations by entering into a payment arrangement with the ATO and by placing the company into external administration. 128 In Canty Handley JA (with whom Beazley and Santow JJA agreed) considered the defence in s 222AOJ(3) of the ITAA which provided that a person sued for a penalty under s 222AOC of the ITAA has available to him or her a defence if it is proved that the person took all reasonable steps to ensure that the directors complied with s 222AOB(1) or there were no such steps that the person could have taken. Similarly to s 269-15 of the TAA 1953, s 222AOB(1) of the ITAA required directors of a company that had failed to remit group tax instalment deductions to cause that company to do at least one of four things specified in the subsection on or before the due date. Those four things were to comply with Div 1AAA, make an agreement with the Commissioner in relation to the company's liability under a remittance provision in respect of such deductions, appoint an administrator to the company or commence the winding up of the company. At [32]-[33] Handley JA referred to dicta in Miller v Deputy Commissioner of Taxation (1997) 98 ATC 4,059 where his Honour observed, Mason P, Beazley JA agreeing, had considered whether in order to make out a defence under s 222API(3), the equivalent of s 222AOJ(3), it was necessary for the person to show the reasonableness of his conduct in relation to all four of the available options. At [33] and [35] his Honour said: 33 However there are dicta in Miller which appear to address the present issue. Mason P, with the concurrence of Beazley JA, said (at 4,063-4,064): "…According to the DCT, the appellant could not make out 'a defence' under s 222API(3) [the equivalent of the defence under s 222AOJ(3)] unless the appellant showed what I shall loosely call the reasonableness of his conduct in relation to all four of the options offered to the directors … The appellant submits that a director need only address one of the four options…and that it suffices if he or she proves that, in relation to that option, all reasonable steps were taken by that person to ensure that the directors caused the company to do one of the four options, or that there were no such steps that the person could have taken … I would reject this submission. What the directors have to do to comply with s [222AOB(1)] is cause the company to do at least one of the four matters. If none of the four matters occurs there has been non-compliance by the directors … The taking by a director of 'all reasonable steps to ensure' compliance by the directors obviously requires that each option be addressed, either in the sense of taking reasonable steps to bring it about or declining to do anything on the basis that there were no such steps that the director could have taken." … 35 The critical passage in the judgment of Mason P ("a director need only address one of the four options") summarises the argument for the appellant. This was that it was open to the recipient of a notice, acting reasonably, to select one of the four steps and in relation to that step prove the par (a) defence or the par (b) defence without having to prove the par (b) defence in relation to the other steps. Mason P rejected that submission and was clearly correct to do so. (emphasis added.) 129 By way of further explanation at [41] Handley JA said: If reasonable steps taken in pursuit of one option fail, non-compliance and the obligation of the director or former director will continue. The director or former director will therefore have to take reasonable steps to achieve compliance in another way. If non-compliance continues long enough before a notice is served each of the four options will eventually have to be addressed and the subs (3) defences will have to cover all options. Compare Deputy Commissioner of Taxation v Solomon (2003) 199 ALR 325 at 337; 52 ATR 729 at 740. 130 His Honour then went on to consider whether the defences must be established for the whole of the period between the due dates and the expiry of the penalty notice and concluded at [45] that "the natural meaning is that the combined defences must cover the whole of the period between breach of the obligation on the due date and the expiry of the notice". 131 Based on Canty the DCT submitted that in order to make out the defence in s 269-35(2), Mr Bobos has to prove that he took the three steps set out in s 269-35(2) throughout the entire period, ie from the due dates to the expiry of the Penalty Notice, and that he had failed to do so. I accept that is so. The evidence before me does not demonstrate what steps Mr Bobos was taking throughout 2013 vis-a-vis the matters specified in s 269-35(2). 132 As to the specific matters raised which Mr Bobos contended constituted "reasonable steps": (1) the question of whether Mr Bobos entered into a payment arrangement with the ATO was addressed in the District Court Judgment. As set out at [103] above, Neilson DCJ concluded, based on the evidence before him which appears to be the evidence that was before me, that no agreement had been reached between Mr Bobos and the ATO prior to entry of the Default Judgment, there were no protestations on the part of Mr Bobos that he was not indebted as alleged by the ATO and, on the contrary, there were admissions that he was so indebted. I agree with that conclusion; (2) as set out at [38] above on or about 16 February 2015 the DCT accepted the payment plan included in the February 2015 Letter. That occurred more than 21 days after the Penalty Notice had been issued to Mr Bobos and thus could not be relevant to a defence under s 269-35(2). In any event, there was a subsequent default of that agreement by Bobos Engineering which brought it to an end; and (3) Bobos Engineering was placed into voluntary administration on 23 March 2015. That was well after expiry of the Penalty Notice. Prior to that time, as the evidence establishes, despite advice to do so from Mr Munro, Mr Bobos elected not to place Bobos Engineering into voluntary administration because to do so would mean that it could no longer pursue its claims against Cristal Mining. There is no evidence that the ATO agreed that Bobos Engineering should continue to trade. This issue was, in effect, also addressed and dismissed in the District Court Judgment at [9]-[14] and the CA Judgment at [15]. 133 Mr Bobos next contends that the ATO was precluded from relying on the Penalty Notice as it did not challenge the liquidators' adjudication of its proof of debt which was admitted, in part, for approximately $375,000. This contention was addressed in the District Court Judgment at [28]-[30]. As the relevant provisions of the TAA 1953 demonstrate and as Neilson DCJ explained, the liability of Bobos Engineering and Mr Bobos is co-ordinate so that any payment by Bobos Engineering of the outstanding amount of PAYG withholding tax would reduce Mr Bobos' liability and vice versa. But here, as is clear from the ATO's Proof of Debt and the Liquidators' Report: (1) the Proof of Debt sought a total amount of $3,172,831.37 made up of the running balance account (RBA) "deficit debt" of $1,412,970.88 and superannuation guarantee charge for the period 1 September 2002 to 31 December 2014 of $1,759,860.49; (2) the Liquidators' Report disclosed that: (c) at that time there were funds on hand of $1,029,034; (d) the liquidators were in a position to pay a dividend to priority creditors, namely claims for employee entitlements as at their appointment; and (e) one of the priority payments to be made was for superannuation. In that regard the liquidators noted that the Proof of Debt sought arrears of superannuation of $1,759,860 but they had adjudicated that claim and reduced it to $375,027.56 which was the amount they would pay. 134 That is, the dividend to be paid to the ATO was for that part of the Proof of Debt relating to the outstanding amount claimed for the superannuation guarantee charge and not for any part of the amount claimed to be outstanding for the RBA. There has been no adjudication of that part of the Proof of Debt. The same conclusion was reached by Neilson DCJ at [30] of the District Court Judgment. Further, given that the Liquidators' Report states that it is not expected that a dividend will be paid to unsecured creditors, I infer that an adjudication of the balance of the Proof of Debt relating to the RBA is unlikely. 135 The final matter raised by Mr Bobos is that the Penalty Notice relates to Bobos Engineering's PAYG obligations, Bobos Engineering was in a payment arrangement at the time the Penalty Notice was issued and the ATO did not take payments of $27,936 into account. The particular payments are set out in an internal Bobos Engineering document titled "Bobos Engineering Australia Pty Ltd Find Report All Transactions" (Bobos Engineering Report). It purports to record 12 payments, each of $27,936, made to the ATO over the period 10 June 2013 to 12 May 2014. 136 This issue was also raised before Neilson DCJ who addressed it at [32] of the District Court Judgment (see [107] above). Ms Crump gave evidence in the District Court Proceeding as well as before me. His Honour noted that before him Ms Crump's evidence, which his Honour accepted, was that the ATO applies payments to the oldest debt owed by the taxpayer. Ms Crump's evidence before me was to like effect: Ms Crump: Your Honour, could I ask - answer that one from my affidavit dated 1 September 2017 in my exhibit JAC1, page 41. There are some payments there of $27,936 which corresponded against Mr Bobos' financial report and they are payments that have been allocated to oldest debt. Her Honour: Mr Bobos. Mr Bobos: And you can confirm that all them payments weren't allocated - some were allocated to P-Y - pay as you go tax and some weren't? Ms Crump: Correct. Mr Bobos: Isn't it true that them payments have been allocated to other debts to leave the director liable for a director penalty notice? Ms Crump: No. Payments were made to the oldest debts. Mr Bobos: If payments were made to the oldest debts, they - them payments would have went to the oldest debts and the oldest debts - them payments haven't gone to the oldest debts. Mr Swan: I object, your Honour. I don't think that was a question. Her Honour: Yes. What's the question, Mr Bobos? Mr Bobos: Is it the ATO practice for payments to go to the oldest debt? Ms Crump: That's correct; as per practice statement 2011/20, payments are allocated as per that practice statement. Mr Bobos: But these payments weren't allocated to the oldest debt, were they? Ms Crump: Yes, they were. 137 I too accept Ms Crump's evidence that payments made to the ATO are applied by it to the oldest debts first. Mr Bobos has not led any evidence to the contrary of any agreement about the manner in which these payments were to be allocated or the basis on which they were made. 138 Further, ss 8AAZL, 8AAZLA and 8AAZLE, found in Div 3 "treatment of payment, credits and RBA surpluses" of Pt IIB of the TAA 1953, are also relevant to this issue. Those sections, which were also discussed in the District Court Judgment and set out therein (see [107] above), permit the DCT to allocate a payment received from a taxpayer to a tax liability of that taxpayer in the manner in which the DCT sees fit. In doing so the DCT is not required to take into account the taxpayer's instructions as to how payments should be allocated. 139 Given these matters there was no obligation for the ATO to allocate the payments identified by Mr Bobos to reduce his liability under the Penalty Notice. Mr Bobos has not established that the amount claimed in the Penalty Notice is not owing or that it is overstated.

Was the issue of the Bankruptcy Notice an abuse of process? 140 As I understand this ground, Mr Bobos contends that the issue of the Bankruptcy Notice is an abuse of process because the DCT had the First Bankruptcy Notice issued on the basis of the Default Judgment but the First Bankruptcy Notice was then set aside by consent. In his written submissions Mr Bobos says that the issuing of the Bankruptcy Notice is an abuse of process "by firstly; signing the consent orders and secondly; entering into a payment agreement between [Bobos Engineering] and the [DCT] for the combined debt, and not removing the default judgement placed on [Mr Bobos] and then issuing a new BN (BN 196271), dated 11 April 2017". 141 In Winn v Blueprint Instant Printing Pty Ltd (2011) 193 FCR 41, among other things, the debtor argued that the issue of two bankruptcy notices based on the same order was an abuse of process. At [49] in addressing that issue Ryan J said: As noted at 38 above, the first bankruptcy notice ceased to have any effect on 24 November 2008 when O'Dwyer FM made his order dismissing the creditor's petition which had been founded on the first bankruptcy notice. The second bankruptcy notice was not issued until 20 February 2009. There can be no suggestion that the issue of more than one bankruptcy notice based on the same judgment debt is an abuse of process. Such a course was expressly contemplated as being regular by a Full Court of this Court in Abignano v Wenkart [1998] FCA 1468. See also Romano v Peldan [2003] FCA 767 where Dowsett J observed, at [17]: Thirdly, it is submitted that the issue of a second bankruptcy notice was an abuse of process. Counsel conceded in the course of argument that this may simply be another way of ventilating the broader construction point to which I have referred. In any event, it is not a complaint which can be made out. It is quite clear from [Re] Fredericke [and Whitworth Ex parte Hibbard [1927] 1 Ch. 253] and Abignano that the issue of a second bankruptcy notice is not an abuse of process per se although, in appropriate circumstances, it may be necessary for the judgment creditor to make an election. The second notice was not issued in bad faith or to embarrass the debtor. It was issued for the proper purpose of advancing the bankruptcy process, given that the appellant was complaining about the inclusion of a relatively small amount of interest in the first bankruptcy notice. 142 It follows that it was open to the DCT to issue the Bankruptcy Notice relying on the Default Judgment given that the First Bankruptcy Notice had been set aside by orders made by consent in the circumstances described at [50] above. The issue of the Bankruptcy Notice in those circumstances does not constitute an abuse of process.

Exceptional circumstances 143 Mr Bobos submitted that the ATO had failed to consider his exceptional circumstances, namely that Bobos Engineering was in litigation with Cristal Mining and he was focused on preparing his claim in the Supreme Court against Cristal Mining. That proceeding ultimately settled resulting in the availability of an additional $500,000. He said had that proceeding not settled and run its course the full amount may have been paid to the ATO. 144 By this ground Mr Bobos seems to suggest that the Court has a discretion to set aside a bankruptcy notice. That is not so. In Australian Securities and Investments Commission v Forge (2003) 133 FCR 487 at [26]-[27] in describing the scheme of the Act Emmett J (with whom Branson and Stone JJ agreed) said: 26 While there is no express power conferred by the Act on a court to set aside a bankruptcy notice, it is clear that there is power to do so. The power is derived from s 30 of the Act and from the principle that a power conferred by Parliament carries with it the power necessary for its performance or execution. Thus, the express power to extend time for compliance with the requirements of a bankruptcy notice, when an application to set it aside has been filed, carries with it the power to set aside the bankruptcy notice itself: Re Sterling; Ex parte Esanda Ltd (1980) 44 FLR 125. 27 However, the Act gives no general discretion to set aside bankruptcy notices that are valid in form and not an abuse of process. The Act permits the issue of a bankruptcy notice and, if the notice is valid, prescribes the consequences to the bankrupt of non-compliance. The grounds upon which a bankruptcy notice may be set aside must relate to the form or content of the notice, service of the notice or the existence of the debt upon which the judgment, and, in turn, the notice, is founded. Reference to the existence of a debt includes the existence of a counterclaim, set-off or cross demand equal to or exceeding the amount of the debt: Re Briggs; Ex parte Briggs v Deputy Commissioner of Taxation (WA) (1986) 12 FCR 310 at 312; Re Athans; Ex parte Athans (1991) 29 FCR 302 at 310. Since jurisdiction to set aside a defective bankruptcy notice is not a general discretionary jurisdiction, it differs from the jurisdiction to make a sequestration order under s 52(1), which is expressly discretionary. 145 The Court has no general discretion to set aside a bankruptcy notice and accordingly this ground cannot be made out. I note for completeness that the matters raised by Mr Bobos in support of this ground have been considered in the context of other grounds relied on by him as a basis to set aside the Bankruptcy Notice and rejected.

conclusion 146 Mr Bobos has not made out any of the grounds upon which he relies to set aside the Bankruptcy Notice. Accordingly, the Application should be dismissed. 147 As Mr Bobos has not succeeded on the Application, he should pay the DCT's costs. 148 I will make orders accordingly. I certify that the preceding one hundred and forty-eight (148) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Markovic.