CORPORATIONS - Application for order that Australian Securities and Investments Commission (ASIC) reinstate registration of company - s 601AH(2) Corporations Act 2001 (Cth) - Plaintiff was sole director and secretary of company - Company deregistered for failure to lodge annual returns with ASIC - Application prompted by notice under s 222AOE Income Tax Assessment Act 1936 (Cth) that plaintiff liable to Commissioner of Taxation for unpaid liabilities of company - Plaintiff entitled to exemption from liability by causing company to be wound up within fourteen days of notice - Where purpose of reinstatement is to effect winding-up of company - Where ASIC not opposed to application for reinstatement - Where Commission of Taxation not opposed to application for reinstatement - Whether order for reinstatement appropriate - Australian Competition and Consumer Commission v Australian Securities and Investments Commission

Reported Decision : 63 ATR 11 (2006) 24 ACLC 844

CITATION : Application of Rade Stojic [2006] NSWSC 608

DECISION : 1. Make orders in accordance with paras 1-6 of the originating process; 2. the exhibits may be returned.

CATCHWORDS : CORPORATIONS - Application for order that Australian Securities and Investments Commission (ASIC) reinstate registration of company - s 601AH(2) Corporations Act 2001 (Cth) - Plaintiff was sole director and secretary of company - Company deregistered for failure to lodge annual returns with ASIC - Application prompted by notice under s 222AOE Income Tax Assessment Act 1936 (Cth) that plaintiff liable to Commissioner of Taxation for unpaid liabilities of company - Plaintiff entitled to exemption from liability by causing company to be wound up within fourteen days of notice - Where purpose of reinstatement is to effect winding-up of company - Where ASIC not opposed to application for reinstatement - Where Commission of Taxation not opposed to application for reinstatement - Whether order for reinstatement appropriate - Australian Competition and Consumer Commission v Australian Securities and Investments Commission (2000) 34 ACSR 232 considered - Policy of Income Tax Assessment Act considered - Application granted - CORPORATIONS - Winding-up - Application for leave for plaintiff to apply for winding-up of company in insolvency - Where grounds for winding-up plainly established - Application granted.

Corporations Act 2001 (Cth) LEGISLATION CITED : Income Tax Assessment Act 1936 (Cth) Taxation Administration Act 1953 (Cth)

CASES CITED : Australian Competition & Consumer Commission v Australian Securities and Investment Commission (2000) 34 ACSR 322

PARTIES : Application of Rade Stojic; Belbron Pty Limited

COUNSEL : Plaintiff: P A Fury Defendant: N/A

SOLICITORS : Plaintiff: Cowley Hearne Lawyers Defendant: N/A

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

2913/06 Application of Rade Stojic; Belbron Pty Limited JUDGMENT 1 HIS HONOUR: This is an application under subs 601AH(2) of the Corporations Act 2001 (Cth) for an order that the Australian Securities and Investments Commission, reinstate the registration of Belbron Pty Limited ACN 088 827 561. The plaintiff, Mr Rade Stojic, was the sole director and secretary of Belbron. Belbron was deregistered on 29 March 2005 for failure to lodge its annual returns with ASIC. In the event that an order for reinstatement is made, the plaintiff also seeks leave pursuant to s 459P(3) of the Corporations Act to apply for the winding-up of Belbron in insolvency and for an order that the company be wound up. 2 The only shareholder of Belbron, a Mr Dane Stojic, consents to the application for the reinstatement of the company and for an order that it be wound up. It appears that the plaintiff acquired control of Belbron on or about 28 October 2002. Prior to that date it was a shelf company, but from that time, until about June 2005, it traded in the building and construction industry. The plaintiff learned in June 2005 that the company had been deregistered. According to the plaintiff, he thereupon caused the company to cease trading and the company has not traded since then. 3 The balance sheet of Belbron as of June 2005 discloses an excess of liabilities over assets of $477,443.88. Such a balance sheet of course was produced on the hypothesis that the company existed. In fact, its assets as of June 2005 were vested in ASIC. The company appears to have traded at a substantial loss from July 2003. It is apparent from the plaintiff's affidavit in support of the application that he did not cause the company to lodge any annual return with ASIC for the period during which he was its director and secretary. He was unaware that the company had been deregistered until informed of that by a proposed lender to whom he had applied for a home loan, who informed him that a search of the company had been made, which disclosed that fact. 4 In November 2005, the plaintiff gave instructions to Jones Condon, chartered accountants, to apply to ASIC for the company to be reinstated. However, on 23 November 2005, ASIC refused the application. It was not satisfied that the company should not have been deregistered, as neither a procedural defect or oversight in the deregistration occurred, nor was the appropriate fee received by ASIC before the date of deregistration. The plaintiff was advised of his right to seek reinstatement by order of the Supreme Court or the Federal Court pursuant to s 601AH(2). 5 No application was made at that time for the company's reinstatement. The present application is prompted by the service by the Australian Taxation Office ("ATO") on the plaintiff of a notice under s 222AOE of the Income Tax Assessment Act 1936 (Cth). By that notice the plaintiff was advised that as a director of Belbron, he was liable to pay to the Commissioner of Taxation, by way of penalty, an amount equal to the unpaid amounts of liabilities of Belbron pursuant to subs 16-70(1) in Schedule 1 to the Taxation Administration Act 1953 (Cth), in respect of various amounts withheld by the company. 6 The notice covered amounts withheld between 1 July 2003 and 30 June 2004 in a total sum of $236,877. Section 222AOB of the Income Tax Assessment Act imposes a duty on the directors of a company to cause the company to comply with its obligations in relation to the remission of amounts due to the Commissioner, or to make an agreement with the Commissioner in relation to the company's liability, or to appoint an administrator of the company under s 436A of the Corporations Act, or to cause the company to begin to be wound up. Section 222AOC provides that if s 222AOB is not complied with, the director is liable to pay to the Commissioner by way of penalty an amount equal to the unpaid amount of the company's liability under the specified remittance provisions. The policy of requiring directors to ensure that companies either meet their taxation liabilities or are placed into external administration is plain. However, the consequences of the imposition of a penalty for failure of the directors to comply with that obligation are qualified by other provisions of Div 9 of Pt VI of the Income Tax Assessment Act. 7 Section 222AOE provides that the Commissioner is not entitled to recover the penalty until the end of 14 days after the Commissioner serves a requisite notice. Section 222AOG provides that if the penalty is payable, but the requirements of s 222AOB (or other relevant sections relating to penalty) are complied with within 14 days after the giving of the notice, the penalty is remitted by virtue of that section. 8 In this case, if the company had been placed into voluntary administration or liquidation during the financial year ended 30 June 2004, the assets available to an administrator or liquidator would probably be very different from the assets, if any, which may be available to a liquidator today. That will often be the case if a company which cannot meet its taxation liabilities is permitted to continue to trade. However, notwithstanding that consideration, Parliament has provided for the penalty payable by a director to be remitted if the director causes the company to be put into voluntary administration or to be wound up within 14 days of receiving a notice under s 222AOE. 9 The plaintiff deposes that he received the notice from the Commissioner on or about 10 May 2006. If he received the notice on 10 May 2006, the 14-day period expires today. Subject to its usual conditions, ASIC does not oppose the application for reinstatement of the company. The ATO has also been notified of the application for reinstatement. It advises that it does not oppose the application. 10 Subsection 601AH(2) provides: " 601AH Reinstatement Reinstatement by ASIC … (2) The Court may make an order that ASIC reinstate the registration of a company if: (a) an application for reinstatement is made to the Court by: (i) a person aggrieved by the deregistration; or (ii) a former liquidator of the company; and (b) the Court is satisfied that it is just that the company's registration be reinstated. "

11 It is often said that in applications under this provision the court takes into account the circumstances in which the company came to be dissolved, whether, if the order is made good, use could be made of it, and whether any person is likely to be prejudiced by the reinstatement (Australian Competition & Consumer Commission v Australian Securities and Investment Commission (2000) 34 ACSR 232 at [27]; ALR 688; ACLC 341). Here the circumstances in which the company came to be dissolved were the result of a procedural default which arose because of the plaintiff's inattention to his duties as a director. If the order is made, the primary use that will be made of it is that the order will be a prelude to the winding-up of the company, and hence, the remittance of the penalty payable by the plaintiff to the Commissioner, assuming that the period of 14 days after the giving of the notice under s 222AE has not already expired. It may also be the case that if sufficient funds were available to the liquidator, the conduct of the affairs of the company under the plaintiff's stewardship might be properly investigated. Third, the only prejudice likely to arise as a result of the reinstatement, if it can be called a prejudice, is the remittance of the penalty payable by the plaintiff. It is significant in that respect that the ATO does not oppose the orders sought. 12 In most cases where orders for reinstatement are made under s 601AH(2), the order will result in a benefit to a person in the position of an outsider having a claim against the company, or will permit an outsider to maintain a claim against officers of the company which would otherwise not be maintainable. 13 My attention has not been brought to any case where an order has been obtained primarily for the benefit of the officer whose default has led to the company being deregistered. I have already observed that it is likely that the quantum of the assets available to a liquidator on the company being wound up today is likely to be very different from what the position would have been had the company been placed in external administration in 2003 or 2004, as it should have been if its taxation obligations were not met. Nonetheless, Parliament has not chosen to impose a personal liability on directors for failure to comply with those obligations, except if the directors fail to comply with a notice under s 222AE within the prescribed period of 14 days. But for the deregistration of the company, there would be nothing to prevent the plaintiff from placing the company into voluntary administration and thereby avoiding his personal liability to the penalty. 14 The policy of the Income Tax Assessment Act is to ensure that if companies do not meet their obligations to remit moneys to the Commissioner, the companies will be placed into external administration. The policy appears to be that that should be done up to the expiry of 14 days after the Commissioner's notice. That policy will be fulfilled if the orders now sought are made. 15 Deregistration was the sanction for the company not filing its annual returns with ASIC. On balance, I do not consider that that procedural default should be allowed to have the substantive effect of precluding the plaintiff from doing what ss 222AOE and 222AOG of the Income Tax Assessment Act contemplate a director may do to avoid his personal liability for a penalty. 16 There may also be other advantages to creditors of the company generally if orders for reinstatement and winding-up are made. If funded, the liquidator can be expected to investigate what appears to have been a course of trading whilst the company was insolvent. The reinstatement of the company will permit its moving to external administration in the way the Corporations Act contemplates, with all the attendant consequences that that entails. 17 I am concerned that the application was not made until the last day and I was not able to give it the consideration I would have wished. However, in this respect also, it is significant that the ATO does not oppose the orders sought. In all of those circumstances I am satisfied that it is just that the company's registration be reinstated. 18 There is no doubt that the plaintiff is a person aggrieved by the deregistration for the reasons which I have given. That it is to say, but for the deregistration, he could readily have moved within the 14 day period to place the company into voluntary administration, or caused it to be wound up. 19 The evidence is plainly sufficient to establish the grounds for winding-up in insolvency. This is an appropriate case for the granting of leave for the director to apply for the winding-up of the company in insolvency. As the company will not be trading, it is appropriate to make the orders sought for the dispensing with notices and advertisements in connection with the winding-up. 20 For those reasons I make the orders in accordance with paras 1-6 of the originating process. The exhibits may be returned.

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