Condon v Commissioner of Taxation

CATCHWORDS : CORPORATIONS - winding up - voidable preferences - claim by liquidator to recover from Commissioner of Taxation - claim by Commissioner for order under s.588FGA(4) against directors - whether Commissioner's claim should be by interlocutory process or cross-claim - whether Commissioner needs leave to initiate claim - whether Commissioner's interlocutory process should be struck out or stayed Corporations Act 2001 (Cth) - ss.588FF, 588FGA LEGISLATION CITED : Supreme Court Act 1970 - s.78 Supreme Court (Corporations) Rules 1999 - rules 1.3(2), 1.8, 2.2 Supreme Court Rules - Part 6 Browne v Deputy Commissioner of Taxation (1998) 26 ACSR 750 Crosbie (as liquidator of Trollope Silverwood & Beck Pty Ltd) v Commissioner of Taxation (2003) 21 ACLC 1659 Dean-Willcocks (as liquidator of SJP Formwork (NSW) Pty Ltd) v Commissioner of Taxation (No 2) [2004] NSWSC 286 Dillingham Constructions Pty Ltd v Steel Mains Pty Ltd (1975) 132 CLR 323 General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 Gibbons (as liquidator of Deemah Marble & Granite Pty Ltd) v Deputy Commissioner of Taxation [2003] NSWSC 936 CASES CITED : Hillig (as liquidator of ACN 060 329 482 Pty Ltd) v Commissioner of Taxation [2001] 2 QdR 147 Lofthouse (as liquidator of Main Jenkins Pty Ltd) v Commissioner of Taxation (2001) 164 FLR 106 Lord v Commissioner of Taxation [2001] NSWSC 759 McVeigh (as liquidator of JAG Plastering & Carpentry Pty Ltd) v Commissioner of Taxation [2004] FCA 653 Scott (as liquidator of Birch Grange Pty Ltd) v Commissioner of Taxation (2003) 53 ATR 652 Silvia (as liquidator of UFI Pools & Spas (Mfg) Pty Ltd) v Commissioner of Taxation [2001] NSWSC 562 Vouris (as liquidator of Cadima Express Pty Ltd) v Deputy Commissioner of Taxation (1999) 33 ACSR 527 Wily (as liquidators of Boutique Resorts Management Pty Ltd) v Commissioner of Taxation [2002] NSWSC 909 Schon Condon - First Plaintiff Justinprint Australia Pty Limited (In Liquidation) - Second Plaintiff PARTIES : The Commissioner of Taxation - Defendant Michael Connor - First Respondent Gary Alex Holiday-Smith - Second Respondent FILE NUMBER(S) : SC 3747/03 Mr K J Pringle, Solicitor - Plaintiffs COUNSEL : Mr P D Rodionoff - Defendant Mr P L Carr - First Respondent Mr P L Harrison, Solicitor - Second Respondent Gordon & Johnstone - Plaintiffs SOLICITORS : ATO Legal Practice - Defendant Grogan & Webb - First Respondent Kemp Strang - Second Respondent

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

3747/03 - SCHON CONDON & ANOR (AS LIQUIDATORS OF JUSTINPRINT AUSTRALIA PTY LTD) v COMMISSIONER OF TAXATION JUDGMENT 1 Before me for decision is a short but significant point of procedure which arises in cases under the Corporations Act 2001 (Cth) where the following combination of circumstances exists: (a) a liquidator alleges that an unfair preference has been given to a creditor of the company in liquidation; (b) that creditor is the Commissioner of Taxation; (c) the alleged unfair preference arises from a payment of a kind referred to in s.588FGA(1); (d) the liquidator seeks, as against the Commissioner, an order for payment under s.588FF(1) of the Act; (e) the Commissioner in turn asserts that directors are liable to indemnify the Commissioner under s.588FGA(2) in respect of any loss or damage resulting from the s.588FF(1) order; and (f) the Commissioner seeks an order under s.588FGA(4) that the directors pay the relevant amount to the Commissioner. 2 The question is as to the appropriate method of initiation of the Commissioner's claim for an order under s.588FGA(4) against the directors and whether the Commissioner may proceed without the leave of the court. 3 Section 588FGA is as follows: "(1) This section applies if the Court makes an order under section 588FF against the Commissioner of Taxation because of the payment of an amount in respect of a liability under any of the following provisions of the Income Tax Assessment Act 1936 : (a) section 221F (except subsection 221F(12)), section 221G (except subsection 221G(4A)) or section 221P; (b) subsection 221YHDC(2); (c) subsection 221YHZD(1) or (1A); (d) subsection 221YN(1); (e) section 222AHA; or under a provision of Subdivision 16-B in Schedule 1 to the Taxation Administration Act 1953 .

(2) Each person who was a director of the company when the payment was made is liable to indemnify the Commissioner in respect of any loss or damage resulting from the order. (3) An amount payable to the Commissioner under subsection (2): (a) is a debt due to the Commonwealth and payable to the Commissioner; and (b) may be recovered in a court of competent jurisdiction by the Commissioner, or a Deputy Commissioner of Taxation, suing in his or her official name.

(4) The Court may, in the proceedings in which it made the order against the Commissioner, order a person to pay to the Commissioner an amount payable by the person under subsection (2). (5) A person who pays an amount under subsection (2) has the same rights: (a) whether by way of indemnity, subrogation, contribution or otherwise; and (b) against the company or anyone else; as if the payment had been made under a guarantee: (c) of the liability referred to in subsection (1); and (d) under which the person and every other person who was a director of the company as mentioned in subsection (2) were jointly and severally liable as guarantors." 4 Section 588FGA(2) causes each relevant director of the company to be under a liability to indemnify the Commissioner in respect of any loss or damage resulting from a s.588FF(1) order. Each of ss.599FGA(3) and (4) is concerned with recovery by the Commissioner of an amount payable by such a director under s.588FGA(2). They allow the Commissioner to select one of two alternatives. The Commissioner may, under s.588FGA(3), sue for debt in any court of competent jurisdiction. Alternatively, the Commissioner may, pursuant to s.588FGA(4) seek, in the proceedings in which the s.588FF(1) order is made, an order that relevant directors pay to the Commissioner the amount payable under s.588FGA(2). 5 The present proceedings involve the second of these alternatives. By an originating process filed on 11 July 2003, the liquidator of Justinprint Australia Pty Ltd seeks an order under s.588FF for the payment of $117,170.60 by the Commissioner. No attempt has been made by the Commissioner to institute separate debt proceedings in accordance with s.588FGA(3), there having been no determination as yet on the question whether the Commissioner is required to make payment under s.588FF(1). Rather, the Commissioner has, by an interlocutory process filed on 10 May 2004 in the proceedings commenced by the liquidator's originating process, acted under s.588FGA(4) to seek an order for payment by directors of whatever the Commissioner may be found liable to pay. 6 The jurisdiction the Commissioner seeks to invoke is the jurisdiction to make an order under s.588FGA(4). That power is exercisable by the court "in the proceedings in which it made the order against the Commissioner". That aspect of the power is of significance in several respects. I shall come back to it. 7 The proceedings in which the relevant order against the Commissioner is sought, being proceedings under s.588FF(1), are proceedings in which the liquidator, as the moving party under that section, makes an application which is, in terms of rule 2.2 of the Supreme Court (Corporations) Rules 1999, "an application required or permitted by the Corporations Act to be made to the Court". Rule 2.2 is in the following terms: " 2.2 Originating process and interlocutory process - Forms 2 and 3 (1) Unless these Rules otherwise provide, a person must make an application required or permitted by the Corporations Act to be made to the Court: (a) if the application is not made in a proceeding already commenced in the Court - by filing an originating process, and (b) in any other case - by filing an interlocutory process.

(2) Unless the Court otherwise directs, a person may make an application to the Court in relation to a proceeding in respect of which final relief has been granted by filing an interlocutory process in that proceeding.

(3) An originating process must: (a) be in accordance with Form 2, and (b) state: (i) each section of the Corporations Act or the ASIC Act, or each regulation of the Corporations Regulations, under which the proceeding is brought, and (ii) the relief sought.

(4) An interlocutory process must: (a) be in accordance with Form 3, and (b) state: (i) if appropriate, each section of the Corporations Act or the ASIC Act, or each regulation of the Corporations Regulations, or each rule of Court under which the interlocutory application is made, and (ii) the relief sought." 8 The question which then arises in relation to the application by the Commissioner under s.588FFGA(4) is whether it is within rule 2.2(1)(a) or rule 2.2(1)(b). Because the Commissioner's claim against the directors must, as specified in s.588FGA(4) itself, be "in" the s.588FF(1) proceedings initiated by the liquidator, it is rule 2.2(1)(b) rather than rule 2.2(1)(a) that applies to it. The terms of s.588FGA(4) and the way in which it allows the Commissioner's claim to be brought seem to me to leave no alternative conclusion. The appropriate procedure for initiating the Commissioner's s.588FGA(4) application is identified by rule 2.2(1)(b) as an interlocutory process in the proceedings in which the liquidator seeks the s.588FF(1) order against the Commissioner. 9 In the present case, the Commissioner's interlocutory process filed on 10 May 2004 seeks an order under s.588FGA(4) against two persons as directors of the relevant company. One of those persons (whom I shall call "the first respondent") says that the Commissioner required leave to file that interlocutory process and, in the absence of leave, may not pursue it. In the alternative, the first respondent says that the Commissioner should proceed by way of cross-claim but again may not do so unless leave is granted. 10 In making these submissions, the first respondent contends that the s.588FGA(4) application, however it might be initiated, is in substance a cross-claim so that part 6 of the Supreme Court Rules should be taken to apply. The first respondent then points to Divisions 2 and 3 of Part 6 dealing with proceedings commenced by statement of claim and proceedings commenced by summons respectively. In the former case, a party against whom a claim is made by the statement of claim may initiate a cross-claim without leave. In the latter case, leave is not required where a defendant cross-claims against the plaintiff but is required in any other case. The position I have described emerges from Part 6 rules 10, 12 and 13. 11 The contention of the first respondent is, in effect, that the situation under discussion is caught by Part 6 rule 12(1) (which says that, except in the case of a cross-claim against the plaintiff, a defendant to a summons may not cross-claim without leave) or is so analogous that the court ought to treat it as if Part 6 rule 12(1) applied. 12 These submissions must, I think, be considered in the light of both the provision of the Supreme Court (Corporations) Rules dealing with interaction between those rules and the Supreme Court Rules and the nature of the cross-claims with which Part 6 of the Supreme Court Rules is concerned. 13 Rule 1.3(2) of the Supreme Court (Corporations) Rules is as follows: "The other rules of the Court apply, so far as they are relevant and not inconsistent with these Rules, to a proceeding in the Court under the Corporations Act, or the ASIC Act, that is commenced on or after the commencement of these Rules." 14 The matter of interactions is also dealt with in rule 1.8: " 1.8 Court's power to give directions The Court may give directions in relation to the practice and procedure to be followed in a proceeding if it is satisfied, in the circumstances of the proceeding, that: (a) the provisions of the Corporations Act, the ASIC Act, or the rules of this Court do not adequately provide for the practice and procedure to be followed in the proceeding, or (b) a difficulty arises, or doubt exists, in relation to the practice and procedure to be followed in the proceeding." 15 Returning to Part 6 of the Supreme Court Rules, we find in Part 6 rule 1 the following: "This Part applies to cross-claims."

Part 1 rule 8 defines "cross-claim" as follows: "'Cross-claim' means a claim for relief under section 78 of the Act." 16 Section 78 of the Supreme Court Act 1970 is in the following terms: " Claim by defendant (1) Subject to subsection (3), the Court may grant to the defendant in any proceedings (in this section called the first proceedings) all such relief against any person as the Court might grant against that person if the person were a defendant in separate proceedings commenced by the defendant for that purpose. (2) The relief which the Court may grant under this section shall include relief in respect of any equitable estate or right, or other matter of equity, or in respect of any legal estate, right or title claimed or asserted by the defendant.

(3) The Court may not, under this section, grant against a person not a plaintiff in the first proceedings relief not relating to or connected with the subject of the first proceedings.

(4) Subject to the rules, a person against whom relief is claimed under this section: (a) shall, if not a party to the first proceedings, become a party to the first proceedings, and (b) shall have the same rights in respect of the person's defence against the claim as if the person were a defendant in separate proceedings commenced by the defendant for the purpose of that claim." 17 Key words here are "if the person were a defendant in separate proceedings". This shows that the objective of s.78 is to allow a defendant to use the proceedings initiated against him as a vehicle for pursuing a claim that would be maintainable by him against another person in separate proceedings, provided that there is a sufficient nexus between the claim the defendant thus seeks to pursue and the subject matter of the existing proceedings. Section 78 is procedural only. Its purpose and effect were stated by Gibbs J in Dillingham Constructions Pty Ltd v Steel Mains Pty Ltd (1975) 132 CLR 323 as follows: "The provisions of s. 78 of the Supreme Court Act, 1970 (N.S.W.) are purely procedural. They permit a defendant in any proceeding to obtain relief against another person without having to institute a separate proceeding for that purpose. Section 78 in no way assists the cross-claimant once it is decided that he has no right to contribution under s. 5 (1) (c) of the Law Reform (Miscellaneous Provisions) Act, 1946 ." 18 A claim by the Commissioner against directors of a company in liquidation with a view to vindication of the Commissioner's statutory right to indemnity under s.588FGA(2) may take any of several forms. The Commissioner may choose to institute a debt action under s.588FGA(3). Alternatively, he might proceed without reference to any mode of procedure specified in s.588FGA (or elsewhere in the Corporations Act), for example by claiming a declaration that the statutory indemnity has come into operation. A third possibility is a claim under s.588FGA(4) for an order as provided for in that section, being a particular remedy made available by statute and capable of being sought in a particular way the statute specifies. 19 If this third course is chosen, the Commissioner will, because of the express terms of s.588FGA(4) itself, initiate his claim "in" the s.588FF(1) proceedings initiated against him by the liquidator. That third course, being a peculiarly statutory construct, cannot be pursued in any other way. While other means of seeking to enforce the right of indemnity may be pursued in the form of separate proceedings initiated by the Commissioner, the particular means provided by s.588FGA(4) may not. It must follow, in my opinion, that, where the s.588FGA(4) avenue is chosen, there is no scope for the operation of s.78 of the Supreme Court Act, even though there is no reason why s.78 may not be availed of if one of the other available procedures for seeking to enforce the s.588FGA(2) indemnity is chosen.

20 From the perspective of the s.588FF(1) proceedings in which the liquidator claims against the Commissioner as defendant, an order in favour of the Commissioner under s.588FGA(4) is not "such relief against any person [being the relevant director] as the Court might grant against that person [the director] if the person [director] were a defendant in separate proceedings commenced by the defendant [that is, the Commissioner] for that purpose". It is relief that, because of the way in which s.588FGA(4) requires it to be sought, may only be granted in the s.588FF(1) proceedings themselves, that is, what s.78 calls "the first proceedings". A claim squarely based on s.588FGA(4) itself is therefore beyond the scope of s.78 of the Supreme Court Act and is, for that reason, not within the definition of "cross-claim" in Part 1 rule 8, with the result that Part 6 rule 1 does not cause Part 6 to apply to it. 21 This analysis is sufficient to dispose of the contention that, as a matter of the construction of the rules of court, the Commissioner requires leave in order to be able to pursue the claim for an order under s.588FF(4) against the two directors of the relevant company in this case. Because rule 2.2(1)(b) of the Supreme Court (Corporations) Rules makes an interlocutory process in the s.588FF(1) proceedings the means of initiating the Commissioner's claim under s.588FGA(4) and that claim is not a "cross-claim" as defined by the Supreme Court Rules, no requirement for leave arises. It remains to consider whether the court should nevertheless - and as a matter of discretion - proceed on the footing that some screening should be undertaken as if leave were required. In that connection, Mr Carr of counsel, who appeared for the first respondent (director), pointed to what might be termed a supervisory procedural jurisdiction in Corporations Act matters created by rule 1.8 of the Supreme Court (Corporations) Rules: " 1.8 Court's power to give directions The Court may give directions in relation to the practice and procedure to be followed in a proceeding if it is satisfied, in the circumstances of the proceeding, that: (a) the provisions of the Corporations Act, the ASIC Act, or the rules of this Court do not adequately provide for the practice and procedure to be followed in the proceeding, or (b) a difficulty arises, or doubt exists, in relation to the practice and procedure to be followed in the proceeding." 22 In approaching this aspect of the matter, it is useful to look at some decided cases. It may be said at once, however, that they provide little guidance. It appears that, even within New South Wales and leaving to one side procedural differences that may arise in other jurisdictions, there is not necessarily any settled practice. In Vouris (as liquidator of Cadima Express Pty Ltd) v Deputy Commissioner of Taxation (1999) 33 ACSR 527, the liquidator's application under s.588FF(1) was by statement of claim and the Commissioner's application for an order against the director under s.588FGA(4) was by cross-claim (being, even if, despite s.78, Part 6 applied, a cross-claim of the kind dealt with in Part 6 rule 10 and therefore not attracting any requirement for leave). It is to be noted, however, that this case pre-dated the commencement of the Supreme Court (Corporations) Rules 1999 (originally the Corporations Law Rules) on 1 March 2000. It should therefore not be taken as indicative of the practice to be adopted in the light of those rules. 23 The judgment in Silvia (as liquidator of UFI Pools & Spas (Mfg) Pty Ltd) v Commissioner of Taxation [2001] NSWSC 562, which concerned certain matters of evidence, does not show in clear terms how the Commissioner's claim against the directors was constituted, although several references to "the cross claim" and "the cross defendants" suggest that a cross-claim was filed. Whether the proceeding itself was commenced by summons, statement of claim or originating process does not appear. 24 In Wily (as liquidators of Boutique Resorts Management Pty Ltd) v Commissioner of Taxation [2002] NSWSC 909, by contrast, the Commissioner's s.588FGA claim was described as "a claim made by the Commissioner of Taxation as defendant by amended interlocutory process filed on 9 July 2001". Curiously, the liquidator's s.588FF(1) claim was described as a claim by further amended statement of claim, although again it might be that the statement of claim procedure had been adopted before the present rules came into force on 1 March 2000. 25 The recent judgment of Austin J in Dean-Willcocks (as liquidator of SJP Formwork (NSW) Pty Ltd) v Commissioner of Taxation (No 2) [2004] NSWSC 286 does not address the present question directly but reflects an assumption (arising, it seems, from submissions of counsel) that cross-claims governed by Part 6 of the Supreme Court Rules may be an appropriate vehicle for the pursuit of a claim by the Commissioner under s.588FGA(4). His Honour said at paragraph 39: "In the present case the directors have available various procedural steps for being heard before s 588FF orders are made. For example, as senior counsel for the Commissioner pointed out, if the Commissioner makes a cross-claim against them under s 588FGA and they disagree with the Commissioner's admission, they can put the fact of insolvency in issue under Part 6 rule 4(c) of the Supreme Court Rules, or seek an order that they are not bound by a finding of insolvency made pursuant to the admission of the Commissioner, under Part 6 rule 4(d). The more difficult question is whether they are entitled to receive notification of the Commissioner's admission or the proposal to make orders, if they are not cross-defendants and have taken no such steps to protect their position." 26 A case providing further guidance is Lord v Commissioner of Taxation [2001] NSWSC 759, a decision of Acting Master Berecry. The Commissioner's claim for an order under s.588FGA(4) was made by interlocutory process. One of the directors against whom that order was sought contended that the claim was premature. He therefore applied for an order setting aside the Commissioner's interlocutory process or, in the alternative, an order that the proceedings as between the Commissioner and that director be stayed. The Acting Master made the following observations about the procedural rules to be applied: "These proceedings are proceedings based on rights and liabilities under the Corporations Law and they are commenced under the provisions of the Corporations Law Rules . However, where those Rules are silent, the Supreme Court Rules apply and, therefore, parties have the protection of the Supreme Court Rules if there are matters of concern which require the Court to make determinations for the proper and fair prosecution or defence of proceedings. In my view, therefore, as a general proposition, the defendant is entitled to bring the application, by way of interlocutory process, at a time and in the manner that he has done so." 27 In the present case, the Commissioner has filed an interlocutory process and supporting affidavit seeking an order against the two respondents under s.588FGA(4). For reasons I have stated, I consider that procedure to be the correct one. It also accords with the procedure referred to by Acting Master Berecry. The Commissioner has also filed points of claim in response to an indication by the Registrar at a directions hearing that the claim should be fully pleaded. I am satisfied that all these steps are unobjectionable and do not warrant intervention on procedural grounds. (In saying that, I do not mean to imply that I have turned my mind to the sufficiency or otherwise of the points of claim that have been produced). 28 I am also satisfied that no requirement for the grant of leave applied in relation to the interlocutory process filed by the Commissioner. No such requirement is imposed by either the Corporations Act or the rules of court. Indeed, s.588FGA(4) should, as I see it, be regarded as making available to the Commissioner, as a matter of ststutory right, a particular form of procedure the incidents of which come from that provision alone. Nor have I been taken to any decided case in which any requirement for leave has been recognised. In addition, no compelling reason has been advanced for the court's seeking to impose any such requirement through rule 1.8 of the Supreme Court (Corporations) Rules, even assuming that provision to be capable of supporting the imposition of such a requirement. 29 I should perhaps interpolate here the comment that rule 1.8 (or the rules more widely) might, in some cases, become the source of procedural directions in cases of the present kind. If the Commissioner proceeds by way of interlocutory process to seek a s.588FGA(4) order and it appears that that claim is of a kind that would best be fully pleaded, the court might order the filing of points of claim or some other document pleading the claim in full. The fact that an application is initiated by originating process or interlocutory process under the Supreme Court (Corporations) Rules does not mean that it must forever remain within those confines if the court considers that orderly progress of the litigation will be enhanced by some form of pleaded expansion, including one in verified form. But there is no basis on which the court could introduce any screening process, based on a leave requirement, in relation to claims which s.588FGA(4) allowed to be brought as what I have described as a matter of statutory right on the part of the Commissioner. 30 The first respondent has nevertheless advanced several reasons why the Commissioner should not be allowed to proceed with the interlocutory process. They are framed as reasons why leave to file should be refused but since, on my findings, there is no need for such leave, I am content to treat them as reasons in support of the proposition that the Commissioner's interlocutory process should be struck out or stayed. 31 The first submission is that the s.588FF(1) proceedings are significantly advanced and that the Commissioner has been guilty of delay in initiating the s.588FGA(4) claim. The proceedings against the Commissioner were commenced in July 2003. Having regard to s.588FGA as a whole, the Commissioner is not constrained to act at any particular time. The Commissioner may await the outcome of the s.588FF(1) claim and if it is, from the Commissioner's viewpoint, adverse, initiate a new proceeding under s.588FGA(3) or an application under s.588FGA(4) in the original proceeding. There can therefore be no expectation that the Commissioner should act at any particular time if, as here, he chooses to proceed under s.588FGA(4) in the s.588FF(1) proceeding before it has been determined as between the liquidator and the Commissioner. On this, I agree with what was said by Acting Master Berecry in Lord v Commissioner of Taxation (above). There is no substance in the first ground. 32 The first respondent next says that the s.588FGA(4) application is premature because the Commissioner may be successful in defending the s.588FF(1) claim. That submission cannot be accepted. The procedure under which the Commissioner proceeds under s.588FGA(4) while the s.588FF(1) proceedings themselves are unresolved is well-established: see, for example, Vouris (as liquidator of Cadima Express Pty Ltd) v Deputy Commissioner of Taxation (above), Hillig (as liquidator of ACN 060 329 482 Pty Ltd) v Commissioner of Taxation [2001] 2 QdR 147, Lofthouse (as liquidator of Main Jenkins Pty Ltd) v Commissioner of Taxation (2001) 164 FLR 106, Silvia (as liquidator of UFI Pools & Spas (Mfg) Pty Ltd) v Commissioner of Taxation (above), Lord v Commissioner of Taxation (above), Wily (as liquidator of Boutique Resorts Management Pty Ltd) v Commissioner of Taxation (above), Scott (as liquidator of Birch Grange Pty Ltd) v Commissioner of Taxation (2003) 53 ATR 652, Gibbons (as liquidator of Deemah Marble & Granite Pty Ltd) v Deputy Commissioner of Taxation [2003] NSWSC 936, Crosbie (as liquidator of Trollope Silverwood & Beck Pty Ltd) v Commissioner of Taxation (2003) 21 ACLC 1659 and McVeigh (as liquidator of JAG Plastering & Carpentry Pty Ltd) v Commissioner of Taxation [2004] FCA 653. In Browne v Deputy Commissioner of Taxation (1998) 26 ACSR 750, the Full Federal Court referred without adverse comment to the way in which the proceedings were constituted: "As mentioned previously, the deputy commissioner had cross-claimed against the four directors pursuant to s 588FGA of the Corporations Law to indemnify the deputy commissioner in respect of the loss or damage he might sustain resulting from any order made under s 588FF of the Corporations Law ." 33 The weight of precedent sanctions the approach under which a s.588FGA(4) claim is initiated and prosecuted in the principal proceedings before there has been any determination in those proceedings of the question of primary liability as between the liquidator and the Commissioner. There is no reason of principle why the established procedure should be considered inappropriate. As was emphasised by Finkelstein J in Crosbie (as liquidator of Trollope Silverwood & Beck Pty Ltd) v Commissioner of Taxation (above) and by Austin J in Dean-Willcocks (as liquidator SJP Formwork (NSW) Pty Ltd) v Commissioner of Taxation (above), it may well be in the interests of the directors of the company that they have an opportunity at an early stage to play an active part in the proceedings. The Commissioner, aware of the avenue of recourse under s.588FGA, may in some cases think it unnecessary to be vigorous in defending the s.588FF(1) claim. Directors may see it as being to their advantage that they be in a position to place before the court evidence and submissions in opposition to the liquidator's claim. 34 The third basis on which the first respondent says that the Commissioner should not be allowed to prosecute the s.588FGA(4) claim is based on the proposition that that claim is, in the words of Barwick CJ in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, "so clearly untenable that it cannot possibly succeed". 35 The alleged preferential payments that the liquidator seeks to recover from the Commissioner were made between 17 December 2001 and 14 May 2002. Under s.588FGA(1), liability to indemnify is visited upon each person who was a director when the preferential payment was made. The first respondent points to an ASIC search that has been put into evidence in which the first respondent is shown as having been a director of the relevant company from 15 May 2001 to 29 August 2001. The contention of the first respondent is that he was not a director between 17 December 2001 and 14 May 2002 when the relevant payments were made, with the result that the case against him under s.588FGA is so devoid of merit that it cannot be allowed to proceed. 36 The Commissioner's response is that s.588FGA pays attention to the definition of "director" in s.9 and therefore extends to the species of de facto director referred to in paragraph (b) of that definition. The Commissioner will attempt to prove that the first respondent is such a de facto director, relying, in part, on matters that emerged at a s.596A examination. To that one would add the observation that the ASIC search is reflective of no more than the information filed with ASIC and cannot be taken to be determinative of anything. A certificate of ASIC under s.1274C, if issued, would be proof that a person was a director at a time stated in the certificate unless and until evidence to the contrary was adduced. It would not preclude the de facto director case that the Commissioner intends to run. Mr Rodionoff, who appeared for the Commissioner, made the additional point that if the Commissioner fails to make good the allegation that the respondents were directors at the times payments were made, the Commissioner may expect to suffer the normal costs consequences. 37 It is not possible to conclude that the Commissioner's claim based on the proposition that the first respondent was a director in the period 17 December 2001 to 14 May 2002 is "so clearly untenable that it cannot possibly succeed". The Commissioner will therefore not be denied the opportunity to pursue the s.588FGA(4) claim on that ground. 38 The first respondent's application was before me on 24 and 31 May 2004 and was the subject of written submissions dated 25 and 28 May 2004. Treating it, as I do, as an application for an order that the Commissioner's interlocutory process filed on 10 May 2004 be struck out or stayed, I order that the application be dismissed with costs.

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