143 The contents of this table can be summarised as follows:
(a) the amounts due for payment in the months of November 2010 through to February 2011 were paid between 52 and 112 days after the due date;
(b) the amounts due for payment in March and April 2011 were paid on time;
(c) the amounts due for payment in May, June and July 2011 were paid between 16 and 31 days late;
(d) the amounts due for payment in August 2011 (which were significantly less than the amounts due in earlier months) were paid on time;
(e) the amounts due for payment in September 2011 were never paid.
144 As can be seen, with the exception of three months, SSA was significantly late with all the payments of its taxation liabilities.
145 It is evident that the ATO was active in pursuing the payment of the outstanding liabilities as the following extracts from its file notes indicate:
25/11/10
Michael [of Solar Shop] stated that he was aware of the debt which was the unpaid October BAS. They cannot pay the debt in full because of cash flow difficulties. He explained that they were still waiting for payments from the government (Solar rebate) and they (the government) are always very slow in paying. He said that he would call me by COB 26/11/2010 with a payment proposal after doing a cash flow analysis. Legal warnings were given.
29/11/10
Michael [of Solar Shop] … stated that they had completed a preliminary cash flow analysis and would pay $150,000 during the week commencing 28/11/2010 & a similar amount the following week. … He explained that they usually shut down for the Christmas break but he was trying to minimise the shutdown because he was concerned about there being very little or no cash flow during this period. He was confident that they could make the 2 weekly $150,000 payments on 1/12/2012 & 8/12/2010 but needed more time to consider their options with regard to the balance of the debt. He agreed to contact me … with a payment proposal for the CAC debt. … Legal warnings were given.
14/12/10
Michael [of Solar Shop] … confirmed the payment of $150,000 made today. He stated that they would make another $150,000 next week but could not commit to a payment arrangement at this stage because of the fluctuations to their cash flow which could have an adverse effect on their ability to maintain any payment arrangement. I told him that the CAC still needed to be adequately addressed despite their circumstances and the ATO was waiting on his payment proposal. … He agreed to call back … with an update and a possible payment proposal. Legal warnings were given.
16/12/10
Michael [of Solar Shop] stated that he would pay $150,000 later this week and then $200,000 next week and $234,000 in the last week in December. He explained that there was a possibility that he could pay these amounts earlier and if his debtors pay as promised he would be able to do so. I told him that he should be aware that the November BAS would be due shortly and that he should take that into account in any payment proposal. … Legal warnings were given.
12/01/11
Michael [of Solar Shop] stated that they could not pay the CAC debt in full because of cash flow difficulties. He agreed to call back later today with a payment arrangement proposal.
13/01/11
Called Michael [of Solar Shop] … and confirmed receipt of payment proposal. … Legal warnings were given with regard to the payment proposal if it is granted. … Michael stated that they could not pay the CAC debt in full because of cash flow difficulties as they are owed around $18 million by the federal government for rebates on installations. … He requested a weekly payment arrangement from 14/01/2011 for the existing CAC debt … total debt is $2,789,303.64. They would pay $300,000 on 14/1/2011, $150,000 on 21/1/2011 and 28/1/2011, $250,000 on 4/02/2011, 11/02/2011, 18/02/2011, 25/02/2011 and 4/03/2011 and then $500,000 on 11/03/2011 and subsequent weeks. I support client's request because they have a very good compliance record and have always engaged with the ATO. … This [is] the most cost effective action the ATO could take at this stage. …
146 By a letter to SSA dated 14 January 2011, the ATO accepted the payment arrangement proposed by SSA the previous day for payment of a total of $2,824,447.40. The ATO's acceptance was made conditional on three matters:
• Payments must be made as detailed in the schedule [outlined in the letter]
• All future lodgment obligations must be met by the due dates
• All future payment obligations must be made by the due dates.
147 The ATO also warned that failing to meet those conditions could result in the commencement of legal action without further notice.
148 SSA made the first three payments in compliance with the payment arrangement but did not comply with it thereafter. The instalments which it did pay after 28 January 2011 were generally $150,000 rather than the required $250,000. Further, SSA did not pay at all the instalment of $500,000 required on 11 March 2011.
149 On 1 February 2011, an ATO officer spoke to Michael Dillon at SSA. The officer warned Mr Dillon that the ATO would not keep on granting SSA payment arrangements and that it was required to clear its current debt while keeping up to date with its current obligations.
150 By letter dated 12 February 2011, the ATO accepted a further payment arrangement (subject to the same conditions as the first) which involved weekly instalments of $150,000 until 25 May 2011, then three instalments each of $200,000 and a final payment of $158,091.35. SSA did pay most of the contemplated instalments although few were paid by the due date and it did not make the final two. However, SSA did not comply with the third condition of the payment plan as it did not make the payment of GST of $762,230 which was due on 21 February 2011.
151 By letter dated 8 March 2011, the ATO accepted a further arrangement for payment by instalments. The arrangement was subject to the same three conditions contained in the earlier payment arrangements. The payment arrangement of 8 March 2011 required the payment of weekly instalments of $150,000 commencing on 9 March 2011 and continuing to 18 May 2011, and thereafter weekly instalments of $200,000 continuing to 29 June 2011, and a final payment of $196,058.30 on 6 July 2011. SSA complied generally with this payment arrangement until the end of May 2011. On 31 May 2011, the ATO wrote to SSA pointing out its failure to comply with all the conditions of the payment arrangement and that an amount of $1,512,885.19 remained outstanding.
152 By letter dated 30 June 2011, the ATO accepted a further payment arrangement which involved weekly instalments of $270,000 commencing on 8 July 2011 with a final payment of $271,097.74 on 12 August 2011. SSA complied with the terms of that payment arrangement. However, while doing so, it did not meet its other taxation liabilities. There are two exceptions to that as SSA did reduce the RBA balance to zero on 17 June 2011 and, in the period from 25 August 2011 to 1 September 2011, it had a small credit balance.
153 The ATO continued to monitor the position closely as the following file notes indicate:
01/03/11
Payment arrangement entered 11/02/11 for payment of $150,000 per week initially has defaulted due to Nov 10 BAS, due 21/02/11, being lodged but not paid - GST $762,230.00.
Arrangement has defaulted due to Case Balance Failure as debt has increased. …
02/03/11
The previous arrangement, input 11/02/11, defaulted 27/02/11. The arrangement payments have been made, but currents are not being paid.
The debt has increased as Jan 11 BAS due 21/02/11 was lodged but not paid. … Debt outstanding is $3,125,993.62.
7/03/11
Michael Dillon rang … re letter he received for Defaulted Arrangement. He explained he has been in a payment arrangement & has been making payments $150,000 pw & he states he makes the payments 6 days early. I checked the account & explained the arrangement defaulted due to Jan 11 BAS lodged 18/2/11 & due 21/2/11 not paid.
Michael stated he sent a letter requesting payment arrangement dated 8/2/11 … I have entered the arrangement for total debt $2,980,946.51.
27/06/11
Rang and spoke to Michael Dillon who advised that the Coy cannot pay the debt in full at the moment due to cash flow problems and he will email me a payment plan to pay by instalment tomorrow …
154 It is apparent from the above that SSA was unable to comply with its taxation obligations, that it did not make payment arrangements with the ATO until the amounts owing were overdue, and that when it did make payment arrangements, it often defaulted, sometimes almost immediately. The exception is the payment arrangement made on 30 June 2011. Mr Dillon repeatedly attributed SSA's inability to meet its taxation liabilities to "cash flow difficulties". The ATO gave multiple "legal warnings" to SSA.
155 The Liquidators submitted that the sum of $2,784,112.47 was due and payable to the ATO at 31 January 2011 and that, in determining whether that was so, the payment arrangements which SSA had made with the ATO should be ignored. They submitted that this was the effect of s 255-15 of Sch 1 to the Taxation Administration Act 1953 (Cth) (the TA Act) and of the authorities. The Liquidators made the same submission with respect to the sum of $962,692.42 due at 30 April 2011 and the sum of $1,511,403.95 due at 31 May 2011 ($512,692.42 at 22 May 2011).
156 Part IIB of the TA Act provides for the establishment of a Running Balance Account (RBA) for a taxpayer. The combined effect of s 8AAZH(1) and the definition of "RBA deficit debt" in s 8AAZA of the TA Act is that the amount shown in an RBA at the end of the day is a debt due and payable to the Commonwealth at that time.
157 Section 255-15 of Sch 1 to the TA Act authorises the Commissioner to permit a taxpayer to pay an amount of a "tax-related liability" by instalments under an arrangement between the taxpayer and the Commissioner. A "tax-related liability" is defined in s 255-1(1) to be a "pecuniary liability to the Commonwealth arising directly under a taxation law (including a liability the amount of which is not yet due and payable)". Section 255-15(2) provides that a payment arrangement between a taxpayer and the Commissioner "does not vary the time at which the amount is due and payable". This contrasts with s 255-10 which authorises the Commissioner, in some circumstances, to defer the time at which an amount of a tax-related liability will become due and payable.
158 In Hall v Poolman [2007] NSWSC 1330; (2007) 65 ACSR 123, Palmer J considered a defendant's appeal to "commercial reality" in the context of an arrangement for payment of taxation liabilities. His Honour rejected the notion that "commercial reality" could alter the effect of the provisions in the TA Act:
[91] However, the decisive answer to the Defendants' appeal to "commercial reality" in their submission that the Commissioner's debt was not payable during the Period is that the tax legislation clearly and unequivocally made that debt payable. If the legislature clearly says that a tax debt is payable at a certain time, neither the Court nor a company director can disregard that statutory imperative by an appeal to commercial reality. Absent an agreement by the Commissioner to defer payment, it is not commercial reality to treat a present liability, statutorily imposed, as if it does not exist.
…
[110] If the company obtains either an agreed deferment of payment under s.255-10 or a stay of enforcement proceedings from the Court, obviously a director of the company may take that fact into account as a commercial reality in ascertaining the company's present and projected cash flow position. But if the company obtains neither a deferment nor a stay, the director must take account of the fact that the debt, as a matter of law and commercial reality, is not a contingent liability and remains presently payable.
159 In Smith v Boné, Gleeson J referred at [41]-[42] to these passages in Hall v Poolman and concluded that none of the payment arrangements between the taxpayer and the ATO then under consideration caused a tax debt which was due and payable to cease to be due and payable. See also, albeit in a different context, Deputy Commissioner of Taxation v Broadbeach Properties Pty Ltd [2008] HCA 41; (2008) 237 CLR 473 at [53]-[57].
160 The Defendants resisted on several alternative bases a conclusion that the balances of the RBA as at 31 January, 30 April and 22 May 2011 were debts due and payable to the ATO at those dates.
161 First, they submitted that the Liquidators' submission assumed that the ATO had made the payment arrangement with SSA pursuant to s 255-15 of Sch 1 to the TA Act when that was not necessarily so. In support of that submission, the Defendants referred to Commissioner of Taxation v Croft [2016] QSC 190; (2016) 312 FLR 216, which concerned the validity of a deed of guarantee provided by a third party as part of the consideration for the agreement of the Commissioner to refrain from taking further steps to recover the taxation liability of a taxpayer. Accordingly, it involved a different form of agreement from that presently under consideration. However, in determining that question, Jackson J considered the contract-making powers of the Commissioner in relation to the enforcement of taxation liabilities. His Honour concluded that a number of matters indicated that the Commissioner did have the power to contract with respect to the payment of taxation liabilities. These included:
(a) s 3A of the TA Act provides for the Commissioner to have "the general administration" of the TA Act, at [45];
(b) the object of Pt IV-15 of Ch 4 in Sch 1 of the TA Act stated in s 250-25 that it is "to ensure that unpaid amounts of tax-related liabilities and other related amounts are collected or recovered in a timely manner";
(c) s 255-5(1) authorises a Commissioner, a Second Commissioner or a Deputy Commissioner to sue in a court of competent jurisdiction to recover an amount of a tax-related liability which remains unpaid after becoming due and payable;
(d) the recognition of the Commissioner's power to contract contained in Precision Pools Pty Ltd v Commissioner of Taxation (1992) 37 FCR 554 at 566-7; Bilborough v Federal Commissioner of Taxation [2007] FCA 773, (2007) 162 FCR 160 at [19]; and Oswal v Commissioner of Taxation [2015] FCA 1439 at [63];
(e) the very terms of s 255-15 which vests power in the Commissioner to permit payment by instalments under an "arrangement". That term is defined in s 995-1(1) of the Income Tax Assessment Act 1997 (Cth) (the ITA Act) as including an agreement intended to be enforceable by legal proceedings, at [47].
162 However, an acceptance that the Commissioner has a power to contract with respect to payment by instalments which is independent of s 255-15 does not avail the Defendants presently. There are no indications that the Commissioner was purporting to exercise such an independent power. On the contrary, the indications are that the payment arrangements with SSA were made pursuant to s 255-15. In the first place, each of the payment arrangements was made by a letter from the Commissioner to SSA accepting the arrangement proposed by SSA. They were not in the form of a formal contract executed by all parties which may have been indicative of the exercise of an independent contract-making power. Secondly, it is apparent that letters were issued by officers exercising delegations and were of a pro-forma kind. Apart from the details of the dates and payments of the instalments agreed upon, the letters were not otherwise adapted to SSA's individual circumstances. The features point to the payment arrangements being of the conventional kind made pursuant to s 255-15. Thirdly, given the express grant of power contained in s 255-15, an inference that it was that power which was being exercised may be readily drawn. If it were otherwise, one would expect to see some express indication to that effect, and none is apparent.
163 Counsel for Kerry J made an alternative submission to the effect that the payment arrangements were "tantamount to an agreed deferment" of the tax liability, of the kind contemplated by s 255-10 of the TA Act. The payment arrangements cannot reasonably be characterised in that way, and I reject that submission.
164 Accordingly, I am satisfied that the Liquidators have established that the payment arrangements were made pursuant to s 255-15, and I reject the Defendants' submission to the contrary. Section 255-15(2) was therefore applicable.
165 Next, the Defendants referred to the judgment of Edelman J in Hussain. They submitted that Edelman J appeared to have accepted that a payment arrangement under s 255-15 could "operate as a waiver of an obligation to pay a tax debt (such waiver being effective until such time as it is revoked)". I do not consider that this is a fair understanding of what Edelman J said in Hussain. His Honour was addressing a submission that a failure by the taxpayer to pay its PAYG liability on 21 November 2013 was not indicative of insolvency because the taxpayer may have had a reasonable expectation that it could reach a payment arrangement pursuant to s 255-15. In respect of that contention, Edelman J said:
[119] FPJ Group might have had a reasonable expectation that it could reach a payment arrangement with the Australian Taxation Office. This expectation might have been based on the Practice Statement, but was more likely to be based on the conversations that Mr O'Toole had with the tax office. But a reasonable expectation is not a waiver of the obligation to pay the tax debt. Prior to, and on, 21 November 2013, FPJ Group's tax had been due and payable on 21 November 2013.
166 On my understanding, Edelman J was addressing only the submission that the defendant may have expected a payment arrangement to be made. His Honour did not have to consider the effect of such an arrangement had it been made. Edelman J did refer to Hall v Poolman and to Smith v Boné elsewhere in his reasons, at [227]-[231]. That being so, it is not readily to be accepted that his Honour would have intended to state or imply a principle different from that for which they stand without adverting to that fact. Accordingly, this contention of the Defendants fails.
167 The Defendants' third submission was that there is no reason to read the expression "due and payable" in s 255-15 of the TA Act as having the same meaning as the expression "due and payable" in s 95A of the Corporations Act. Counsel submitted that the term "due and payable" is used in s 255-15 in order to make it clear that interest continues to run on the unpaid amount. He referred in this respect to the note to s 255-15 which provides that, despite an arrangement under the section, any general interest charge or other relevant penalty begins to accrue when the liability is "due and payable" under the relevant taxation law or at that time as varied under s 255-10 or s 255-20. Counsel for Kerry J sought to support this submission by an argument that a payment to the ATO pursuant to a payment plan could constitute a preference. I do not regard that as a persuasive consideration.
168 I reject this submission of the Defendants. The term "due and payable" is well known. There is no reason to suppose that it is used in the TA Act with other than its usual meaning. The fact different legislation attaches particular consequences to a debt being due and payable does not warrant a conclusion that the term has a separate and distinct meaning in each piece of legislation.
169 Finally, the Defendants contended that it was "commercially unreal" when assessing insolvency to take into account a debt in respect of which there is a formal arrangement for payment by instalments. This submission requires a conclusion which is inconsistent with s 255-15 and seems to challenge the correctness of the view stated by Palmer J in Hall v Poolman. That statement is well accepted in the authorities. The Defendants did not develop any submission to the effect that Hall v Poolman was, in this respect, wrongly decided. I reject this submission.
170 Accordingly, I am satisfied that the Liquidators' inclusion at each of the alternative dates of insolvency of SSA's liability to the ATO was appropriate.