Deputy Commissioner of Taxation, in the matter of WA Beard Pty Ltd v WA Beard Pty Ltd

A Introduction 1 This is an application made pursuant to r 39.05 of the Federal Court Rules 2011 (Cth) (FCR) for an order to set aside an order of this Court made on 14 July 2017 that WA Beard Pty Ltd (Company) be wound up in insolvency under the Corporations Act 2001 (Cth) (Act). A further order is sought to set aside the appointment of Mr Andrew Bowcher of RSM Australia Partners as liquidator of the Company. An application is also made under s 482(1) of the Act for an order terminating the liquidation. 2 For reasons that will become obvious, I do not believe it is necessary for me to consider the terminating of the liquidation under s 482(1) of the Act. In circumstances where it is appropriate that the winding-up order and the appointment of the liquidator be set aside, the appropriate course is to proceed pursuant to FCR 39.05 in setting aside the relevant orders, given the potential for adverse impact on the reputations of those concerned (in this case, the Company and the controller of the Company, Mr Wayne Beard). 3 Orders are also sought for Mr Beard to be joined as a second defendant to these proceedings and that he be granted leave to appear pursuant to the Act to represent the Company in and for the purposes of this application. I would be disposed to grant leave for Mr Beard to appear, however, I do not believe it is necessary for Mr Beard to be joined as a party, nor is it necessary for me to determine the application for leave to appear. This is because I can allow Mr Beard to appear as an interested person pursuant to r 2.13(1)(c) of the Federal Court (Corporations) Rules 2000 (Cth).

B Relevant principles 4 I now turn to the basis of the Court's power to set aside the winding-up order. It is plain that FCR 39.05(a) provides that a Court may set aside an order after it has been entered if it was made in the absence of a party. The scope of the power to set aside an entered order is, of course, of more limited scope than that provided for in FCR 39.04 (which deals with circumstances where the order has not been entered). The Court's discretion under FCR 39.05(a) is limited to exceptional circumstances and must be exercised with caution, mindful of the overarching principle of finality of litigation: Australian Securities and Investments Commission v ActiveSuper Pty Ltd (No. 4) [2013] FCA 318 at [6] per Gordon J. 5 Despite this, the discretion to vary or set aside a judgment under FCR 39.05(a) is not confined. Simply, the requirement is, like all broad discretions, for the discretion to be exercised judicially. One of the circumstances where courts exercising jurisdiction under the Act have set aside winding-up orders, is where the power is invoked in an appropriate case in order to protect the company's right to be heard and the integrity of the Court's processes: Double Bay Newspapers Pty Ltd v The Fitness Lounge Pty Ltd [2006] NSWSC 226; (2006) 57 ACSR 131 at 137 [36] per White J. 6 That power is available on proof of a company's solvency, notwithstanding that there was nothing irregular about the process by which the winding-up order was made: Re Teca Pty Limited [2011] NSWSC 686 at [4] per White J. In relation to setting aside a winding-up order, Hodgson J observed in George Ward Steel Pty Ltd v Kizkot Pty Ltd (1989) 15 ACLR 464 at 465, that: In my view, if an order winding up a company is made in the absence of the defendant company, and an application is brought promptly by the company, with notice being given to the liquidator, to the plaintiff and to any creditor who appeared at the hearing; and if the evidence shows an explanation for the non-appearance at the hearing and indicates solvency of the company; and if there is consent to setting aside, or at least non-opposition; and if the liquidator indicates that nothing in his investigations to date shows a reason for the company to be stopped from trading, then the court will normally set aside the order. 7 As Finkelstein J observed in Deputy Commissioner of Taxation v Annesley Plant Hire Pty Ltd [2010] FCA 755 at [12], it has been argued that Hodgson J's observations mean that a company must show that it is solvent, that is, it would be able to defeat a winding-up application. That view has been questioned, and his Honour noted that the evidence only need rise as high as indicating solvency. More importantly for present purposes, there is one other aspect of Hodgson J's observations that Finkelstein J described as "troubling": the implicit suggestion that the success of the application will depend upon there being consent by, or at least non-opposition from, the liquidator. As his Honour explained, that cannot be so. There are two reasons why this is the case. First, whether or not the application to set aside a winding-up order is opposed is beside the point. What is important is that justice is done to the parties. Secondly, as his Honour noted, the approach suggested by Hodgson J, if followed, would have the effect of "converting the liquidator into a protagonist" (at [13]).

C facts 8 Having identified the Court's power, I now turn to the chronology of what has occurred in this unusual case. 9 On 24 March 2017, a creditor's statutory demand was served on the Company by mail. In accordance with the requirements of s 459E(3) of the Act, the statutory demand was accompanied by an affidavit, in which an employee of the Australian Taxation Office (ATO) deposed to the fact that the Company owed the ATO an amount of $85,255.19, comprising income tax as per returns taken to be notices of assessment and a general interest charge for late payment. 10 On 24 May 2017, having received no response to the statutory demand, solicitors acting on behalf of the Deputy Commissioner of Taxation served on the defendant an originating process, returnable on 23 June 2017, together with an affidavit which deposed to the fact that the amount of $85,255.19 was still outstanding. A consent of liquidator (that of Mr Bowcher, dated 23 May 2017) was also served. 11 The matter came before the Registrar on 23 June 2017, at which time the matter was adjourned to 14 July 2017. 12 I pause in this narrative to then turn to the evidence of Mr Beard. He acknowledged service of a letter dated 24 May 2017, which served the originating process and accompanying documents. On 12 July 2017, he attended the Bathurst Post Office and made payment of $83,632.89 by way of personal cheque. 13 In evidence is a copy of the online "Tax Agent Portal" referable to the Company. It establishes that, on the date of payment, the amount then outstanding to the ATO was $83,632.89. Accordingly, it appears that when Mr Beard attended the Bathurst Post Office, he paid the amount said to be outstanding pursuant to the "Tax Agent Portal" records then held by the ATO. 14 The Federal Court of Australia "Guide For Practitioners and Parties in Corporations Matters Listed Before a Registrar" provides that: For the avoidance of doubt, practitioners should note that updating affidavits of debt and search are not required under the Corporations Rules and are generally not required in standard winding up applications before the Court will make a winding up order. 15 In these circumstances, Mr Bavin, who appeared on behalf of the Deputy Commissioner of Taxation, indicated it is no longer current practice to have what has been described as an 'updated affidavit of debt' at the hearing of winding-up applications in the Registrar's list. Irrespective of this practice, I am told that even if an updated affidavit of debt had been prepared in the present case, the time period which would have elapsed from the payment on 12 July 2017 would not have been sufficient for the records of the ATO to be updated prior to the hearing. Accordingly, the fact that the application was made after payment was made is entirely understandable and no justifiable criticism can be directed to the solicitor for the plaintiff who appeared in obtaining the relevant orders on 14 July 2017. 16 On the evening of 14 July 2017 (that is, some hours after the winding-up order was made), Mr Beard was telephoned by Mr Timothy Gumbleton of RSM Australia Partners, who said to Mr Beard words to the effect that: "…he was the liquidator because the company has been wound up today". Mr Beard deposed that he responded with words to the following effect: "I don't know why this is because I paid the amount at the post office on Wednesday and it was taken out of my account that night". Accordingly, at the end of the business day on which the winding-up order was made, Mr Beard had communicated the reality that he had, two days before the winding-up order was made, paid the amount then said to be owing to the ATO.

d consideration 17 A number of the cases in this area deal with court rules where there is a distinction between the ability of the Court to set aside a judgment entered in a party's absence and where a winding-up order was obtained through an 'irregularity'. This distinction is between those cases where a defendant is entitled, as of right and not merely as a matter of discretion, to have the judgment set aside, and those cases where there was no irregularity but an order was obtained in the absence of a defendant. 18 In Re Teca Pty Limited, a matter characterised by the Court as one not involving a winding-up order obtained irregularly but in which the order was obtained in the absence of the defendant, White J said (at [4]) that it was: …well settled that where a winding-up order is sought to be set aside under that rule and where there has been no irregularity in obtaining of the order, it is incumbent on the company seeking to set the winding-up order aside to adduce evidence showing that the company is solvent (see Labraga v Pomfret [2005] NSWSC 654 at [44])… 19 To similar effect, in Re Joe's European Auto Specialists Pty Ltd [2014] NSWSC 195 at [9], Black J said that: …The Company was not present when the winding up order was made, and that may authorise, in an appropriate case, the setting aside of that order to protect the Company's right to be heard and the integrity of the Court's processes…That jurisdiction is available, on proof of the Company's solvency, notwithstanding there was nothing irregular about the process by which the winding up order was made… (citations omitted) 20 In Re Joe's at [11], Black J observed that on such applications, Courts have emphasised the importance of proof, preferably including accounting evidence, as to a company's financial position. Reference was also made to the view that evidence ought to typically be obtained from persons other than a single director or shareholder without external confirmation. In Expile Pty Ltd v Jabb's Excavations Pty Ltd [2003] NSWCA 163; (2003) 45 ACSR 711 at 719 [16], the New South Wales Court of Appeal emphasised that a party seeking to establish solvency must lead the "'fullest and best' evidence of the financial position of the [company]". Having said that, as White J noted in Commonwealth Broadcasting Corporation Pty Ltd v Pacific Mobile Phones Pty Ltd [2008] QSC 210; (2008) 219 FLR 422 at 430 [29]: It would be oppressive if a small, viable company, with no creditors…were required to expend significant sums to employ an external accountant to analyse its books and records to rebut the presumption of insolvency. 21 It seems to me that these comments have added force in circumstances, such as the present, where it appears to me from the evidence that there is no real issue about the solvency of the Company. Mr Beard has led some evidence as to the solvency of the Company. He has obtained the annual report for the Company for the year ended 30 June 2016 from his accountant and, on the basis of information given to him by the accountant, has deposed that the estimated net profit for the business for 2017 is $23,856.01. I pause to remark that on 20 July 2017, Mr Beard caused an amount of $21,522.76 to be paid in full satisfaction of an additional debt owing to the ATO. 22 It is unnecessary to recount for the purposes of this judgment the difficult personal circumstances which apparently caused Mr Beard not to act as diligently as otherwise would have been the case in attending to management tasks, such as the banking of takings and providing records to his accountant to ensure the financial records of the Company would be up to date. I accept that there are circumstances which explain satisfactorily the reason for Mr Beard's regrettable oversight. I also accept that after paying the amount he believed was outstanding on 12 July 2017, Mr Beard did not believe that it was necessary for him to do anything further in order to bring this matter to a conclusion. 23 Although it is not strictly relevant on an application to set aside a winding-up order for me to satisfy myself as to the future conduct of the Company's affairs (in contradistinction to the position under s 482 of the Act), Mr Beard has provided evidence, which I accept, that he has now taken steps to address the issues that caused the state of affairs leading to this proceeding.

e conclusion & orders 24 In all the circumstances, this seems to be a clear case where the orders made on 14 July 2017 winding up the Company in insolvency and appointing Mr Bowcher as liquidator should be set aside. 25 This leaves the question of the costs incurred by the plaintiff, and the remuneration and costs incurred by the liquidator during the period after the winding-up orders were made. 26 Agreement was reached between Mr Beard and the solicitors for the plaintiff not to disturb the cost order that was made on 14 July 2017, and for the costs of this application to be paid in full. Accordingly, the orders will reflect that order 3 made on 14 July 2017 will not be set aside, and a notation will be made than an additional amount of $500, representative of the plaintiff's costs, have also been paid in full. 27 Mr Glen Cussen, as solicitor for the liquidator, swore an affidavit deposing to the nature of the quantum for the costs claimed by the liquidator. It may have been necessary for me to deal with a remuneration claim, but the liquidator and Mr Beard's representatives sensibly, and consistently with their obligations pursuant to the overarching purpose, resolved this aspect of the controversy. An order will be made reflecting the nature of that compromise. 28 Accordingly, I make the following orders: (1) Pursuant to r 2.13 of the Federal Court (Corporations) Rules, Wayne Arthur Beard be granted leave to appear. (2) Pursuant to FCR 39.05(a), Orders 1 and 2 made on 14 July 2017 be set aside. (3) Pursuant to s 473(3)(b)(ii) of the Corporations Act 2001 (Cth), the remuneration of the former liquidator of the defendant be fixed in a total amount of $9,000 only plus GST. 29 I also make the following notations: (4) That an additional sum representing the plaintiff's costs has been paid by Mr Beard, in full, in the amount of $500. (5) The agreement between the former liquidator of the defendant and the defendant and Mr Beard that: (a) in addition to the total and final remuneration determined by the Court by Order 3, an amount of $1,340.34 only is to be the subject of a deduction from amounts held in the trust account administered on behalf of the defendant by its former liquidator (trust account) in satisfaction of disbursements incurred by the liquidator; (b) an amount of up of $3,300 is to be appropriated by the liquidator from the trust funds held to pay liabilities already incurred by way of insurance cover upon the undertaking of the former liquidator to repay to the defendant, without any deduction whatsoever, of any amounts received representing refunds of any insurance premiums paid. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lee.