Nature of the application, chronology and affidavit evidence
By Interlocutory Process filed on 19 April 2024, the Commissioner of Taxation seeks an order under s 588FGA(4) of the Corporations Act 2001 (Cth) ("Act") that the respondent to the Interlocutory Process, Mr McGurgan, pay a specified amount and interest under s 100 of the Civil Procedure Act 2005 (NSW) ("CPA"), by way of indemnity of a preference payment recovered from the Commissioner of Taxation, in circumstances which I address below.
I should first set out the chronology of events and then turn to the affidavit evidence. By Originating Process filed on 15 April 2020, Messrs Tang and Kassem in their capacities as the joint and several liquidators of Media Corp International Pty Limited (in liq) ("Company") sought an order that the Deputy Commissioner of Taxation pay them the amount of $1,807,546, plus costs and interest, in respect of a voidable transaction by way of unfair preference involving a payment by the Company to the Commissioner of Taxation.
As I will note below, the liquidator and the Commissioner of Taxation ultimately agreed to consent orders which were made by the Court, and Mr McGurgan was given notice of the steps that were being taken to reach agreement and of the proposal to make those orders before they were made, and he was therefore allowed the opportunity to intervene in the proceedings and seek to assert any defence that may have been available to the liquidator's claim. As I will also note below, he did not do so.
The Court then made orders on 23 August 2021, by consent, which provided for the payment of $1,500,000 by the Commissioner of Taxation to the Company, on the liquidator's application. A schedule to those orders set out the manner in which that figure was calculated, and it included an amount of $1,094,341.38 which was referrable to a liability under Subdiv 16-B in Schedule 1 to the Taxation Administration Act 1953 (Cth) ("TAA").
I have referred to the Interlocutory Process by which this application was brought above. The Court ordered that the matter proceed by way of Points of Claim and, in a succinct Points of Claim filed on 9 September 2024, the Commissioner of Taxation set out the basis of the application, namely, that the liquidator commenced the proceedings to which I referred above; an order was made referable to the amount to which I have referred above; Mr McGurgan was a director of the Company on the date when each payment was made to the Commissioner, which has now been recovered by the liquidator under s 588FF of the Act; and, by reason of s 588FGA(2) of the Act, Mr McGurgan is liable to indemnify the Commissioner in respect of the amount recovered, being the amount referable to Subdiv 16-B of Schedule 1 to the TAA.
Mr McGurgan was originally represented by a solicitor in respect of that application, but that solicitor filed a notice of ceasing to act on 12 October 2024, which identified both a residential or business address of Mr McGurgan and a last known email address. There is evidence that this application and relevant documents connected with it have been served upon Mr McGurgan at each of those addresses.
Turning now to the evidence in support of the application, the Commissioner relies on an affidavit dated 20 August 2021 of Mr Metlej, a solicitor acting for the Commissioner, which was presumably filed in respect of the liquidator's claim. Mr Metlej there refers to a company extract which indicates Mr McGurgan's role as director of the Company since 23 August 2022, and annexes correspondence which demonstrates that, as I noted above, Mr McGurgan was given notice of the Commissioner's intent to consent to orders in respect to the liquidator's claim against it; requested an opportunity to consider those claims, which it appears was given; was advised of the detail of the claims, and provided with a copy of the orders which were proposed to be and ultimately were made by the Court; and his solicitors responded, by letter dated 11 August 2021, by repeating an earlier request for access to documents, and indicating that Mr McGurgan did not have sufficient funds to meet any indemnity, which was disputed by him in any event. That correspondence makes clear that Mr McGurgan had an opportunity, as a third party to the liquidator's claim, to defend that claim where he would otherwise be prejudiced by an order under s 588FF which gave rise to a right to indemnity under s 588FGA, consistent with the expectation identified in the case law including Noxequin Pty Ltd v Deputy Commissioner of Taxation [2007] NSWSC 87 ("Noxequin") and Commissioner of Taxation v Moodie (2014) 308 ALR 571; [2014] NSWSC 59. In the event, Mr McGurgan did not take up that opportunity.
The Commissioner also reads the affidavit dated 17 April 2024 of Mr Carrigy, who is an Australian public servant employed in the Lodge and Pay section of the Australian Taxation Office ("ATO"). Mr Carrigy refers to the accounting systems maintained by the Commissioner; points to a company search which identifies that Mr McGurgan was a director of the Company since 23 August 2012, and therefore at all relevant times; points to the claim brought by the liquidators of the Company against the Commissioner of Taxation to recover the claimed preference and to the orders made by the Court in that respect; and sets out accounting records extracted from the ATO's computer systems which identified that part of the amount which the Commissioner was ordered to pay to the Company which was in respect of payments made by the Company in respect of a liability of the Company under Subdiv 16-B in Schedule 1 to the TAA. The figure there indicated, in the accounting records of the Commissioner, is consistent with the figure which was recorded in the orders made by the Court referable to the same matter. Mr Carrigy contends that, on that basis, Mr McGurgan is a person who is liable to indemnify the Commissioner in respect of the loss or damage which the Commissioner has suffered, referable to the amount which the Commissioner has been required to repay to the company pursuant to the orders made in the proceedings.
The Commissioner reads an affidavit dated 22 February 2024 of another solicitor acting for it, Ms Weber, which refers to service of documents relating to the proceedings upon Mr McGurgan, at the addresses to which I referred above, and which also indicates that the Commissioner's solicitors had advised Mr McGurgan that the Commissioner would seek a lump sum costs order in the proceedings, in the amounts set out in a letter dated 22 October 2024, reflecting a discount to costs then incurred and a further amount by way of disbursements.
Finally, by a second affidavit dated 23 October 2024, Mr Carrigy confirms the total amount payable to the Commissioner claimed under s 588FGA of the Act and confirms that no payments have been made and no credits have arisen which would have reduced that amount, and also calculates the amount of interest that is claimed under s 100 of the CPA in respect of that amount from the date on which the Commissioner's cause of action to recover the amount under s 588FGA arose to the date of the orders that are sought today.
[3]
Determination
Section 588FGA(1) of the Act relevantly provides that the section applies if the Court makes an order under s 588FF of the Act (as it has here done) against the Commissioner of Taxation because of the payment of an amount in respect of a liability under, relevantly, Subdiv 16-B in Schedule 1 to the TAA. Section 588FGA(2) provides that each person who was a director of the company when the payment was made, as Mr McGurgan here was, is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order. Section 588FGA(3)(a) provides that an amount payable to the Commissioner under s 588FGA(2) is a debt due to the Commonwealth and payable to the Commissioner. Section 588FGA(4) provides for one means by which such an amount may be recovered, namely, by an application made in the proceedings in which the Court made the relevant order against the Commissioner. The Commissioner here takes that approach. Section 588FGA(5) preserves certain rights to a person who is the subject of an order under s 588FGA which would not be affected by the orders that I am asked to make today. Section 588FGB identifies certain defences which are available to a director, but Mr McGurgan does not seek to invoke those defences in this application.
In submissions, Mr Metlej, who appears for the Commissioner, draws attention to the applicable principles. He accepts that, as I have noted above, that a director would need to be given notice of proceedings which may give rise to a liability under s 588FGA of the Act, as occurred here. He points out, by reference to authority, that the Commissioner is not obliged to procure the status of a third party for the director in the proceedings. That proposition is sensible enough where, once the director is given notice of the proceedings, he or she has the opportunity to intervene in them as a third party. Mr Metlej points out that Mr McGurgan could have sought to assert defences which may be available to the liquidator's claim, but did not seek to do so. He points to authority, including the decision of Barrett J (as his Honour then was) in Noxequin, that the Court has no direct or immediate part in determining the liability of a director under s 588FGA, where that liability is statutory and arises independently of any order made by the Court against the director. That arises because s 588FGA of the Act, as I noted above, creates a liability of the director to indemnify the Commissioner under s 588FGA(2) and provides that the corresponding amount payable to the Commissioner is a debt due to the Commonwealth and payable to the Commissioner under s 588FGA(3)(a) of the Act. The Court's role here is limited to that specified in s 588FGA(4), namely, to make an order for payment of the amount that arises as a liability under s 588FGA(2).
Mr Metlej rightly points out that the loss and damage recoverable by the Commissioner will extend to interest that the Commissioner is ordered to pay on the amount payable under s 588FF, but no such liability arises here, where the Commissioner was not ordered to pay such interest. As I noted above, the Commissioner here seeks interest under s 100 of the CPA, but in respect only of the amount that he was ordered to pay. Mr Metlej also points out, under the case law, that the Commissioner is entitled to await the outcome of the proceedings under s 588FF(1) of the Act, and initiate the application under s 588FGA(4) at a subsequent point, as he has here done.
Mr Metlej in turn submits, and I accept, that each of the matters necessary to establish liability under s 588FGA of the Act are here established in respect of Mr McGurgan in respect of the amount claimed against him. The relevant orders were made against the Commissioner under s 588FF of the Act, on the liquidator's application, and Mr McGurgan had notice of the proceedings and the opportunity to intervene in them. The orders were made because of the payment of a relevant liability, within the scope of s 588FGA(1) of the Act, namely, the Company's liability under Subdiv 16-B in Schedule 1 to the TAA. Mr McGurgan was a director of the Company at the time the relevant payments which were later the subject of the s 588FF order were made for the period from 23 January 2018 to 2 April 2019. The Commissioner has paid the amount due to the Company, by its liquidators, under the relevant orders, and that gives rise to the statutory liability of Mr McGurgan to indemnify the Commissioner for the amount of the Commissioner's loss and damage under s 588FGA of the Act. That indemnity has the status of a debt due by Mr McGurgan to the Commonwealth of Australia and payable to the Commissioner, under s 588FGA(3)(a) of the Act, and the Commissioner here invokes the procedure available under s 588FGA(4) of the Act to recover that debt. Mr McGurgan has not raised any defence to the claim under s 588FGB of the Act.
For these reasons, I am satisfied that an order should be made for the amount claimed under s 588FGA(4) of the Act, and I also allow interest in the amount claimed under s 100 of the CPA, for the period from the date on which the right to indemnity under s 588FGA arose to today, recognising that the Commissioner has in fact calculated that amount by reference to the day after the date on which the order was made.
[4]
Costs
The Commissioner seeks an order for costs of the proceedings, fixed in a lump sum, by reference to 70% of legal costs incurred and all of the disbursements incurred. Mr McGurgan was given notice of the application for lump sum costs on that basis. I am satisfied that the amount of costs claimed is proportionate to the nature of the proceedings; the discount of 70% there allowed to the costs claimed is one which has commonly been applied in gross sum costs applications; and I am satisfied that a gross sum costs order is properly made, where it will be unreasonable to put the Commissioner to the costs of assessment, particularly when Mr McGurgan's solicitor has previously advised that he cannot meet the amount of the indemnity claimed and, in those circumstances, the prospects of the Commissioner ultimately recovering the costs that are awarded are not sufficiently large to justify the costs that would be incurred in an assessment process.
[5]
Orders
For these reasons, I make orders in accordance with the orders initialled by me and placed in the file. As Mr Metlej has accepted, I have amended order 2 to specify the figure of $19,887.86, excluding unbilled costs that were previously claimed by the Commissioner.
[6]
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Decision last updated: 20 November 2024